Besides the introduction and conclusion, this thesis is comprised of six independent chapters. In this thesis we provide an in-sample and out-of-sample assessment of how the South African Reserve Bank (SARB) sets its policy rate, post 2000 inflation targeting regime, in the context of both linear and nonlinear Taylor-type rule models of monetary policy.<p. Chapter 2 provides the theoretical foundations and the case study discussion. The literature has shown that the Taylor (1993) rule has gone through many modifications since the last decade of the 20th century. The modifications of the Taylor rule include interest rate smoothing, backward and forward looking versions, and nonlinear approximations. Furthermore, there has been increasing debate on whether central banks should respond to asset prices and financial variables. Despite some disagreements, economists seem to agree on the role of the financial market in determining inflation and economic performance. As far as South Africa is concerned, a stable financial system is one of the mandates of the central bank. Chapter 3 discusses the research methods used in the thesis. First, the chapter provides an overview on the Hodrick-Prescott Filter used to detrend some series. Second, more focus is oriented on a class of estimators, used in this thesis, called Generalized Method of Moments (GMM) estimators. GMM is important in that it can be applied to several estimation contexts besides the linear model. In fact, GMM can provide a simple alternative to other estimators, especially when it is difficult to write down the maximum likelihood estimator. Chapter 4 is aimed to provide the source of data, to show the transformation made to some of them and to explore the data for preliminary results. The Augmented Dickey- Fuller (ADF), Phillips-Perron (PP), GLS transformed Dickey-Fuller (DFGLS) and Kwiatkowski, et. Al. (KPSS) tests suggest that all the series follow a stationary process. The chapter also reveals that the financial conditions index measured as an equal weight average of its components yields a smallest AIC than other alternative suggested herein. Furthermore, the chapter shows that the models that consider coincident business cycle indicator, rather than industrial production, perform better in terms of goodness of fit. Given the controversial debate on whether central banks should target asset prices for economic stability, chapter 5 investigates whether the SARB pays close attention to asset and financial markets in their policy decisions. The main findings are that the SARB policy-makers pay close attention to the financial conditions index when setting interest rate. In the same chapter, it is also found that nonlinear Taylor rule improves its performance with the advent of the financial crisis, providing the best description of insample SARB interest rate setting behaviour. The 2007-2009 financial crisis witnesses an overall increased reaction to inflation and financial conditions. In addition, the financial crisis saw a shift from output stabilisation to inflation targeting and a shift, from a symmetric policy response to financial conditions, to a more asymmetric response depending on the state of the economy. Although one could have expected that the SARB’s response of monetary policy to output during the crisis to increase, the response has dropped significantly. These results show the concern over the high level of inflation observed during the second semester of 2008.<p. In chapter 6, we test the concept of Opportunistic Approach to monetary policy. The findings support the two features of the opportunistic approach. First, we find that the models that include an intermediate target that reflects the recent history of inflation rather than a simple inflation target improve the fit of the models. Second, the data supports the view that the South African Reserve Bank (SARB) behaves with some degree of non-responsiveness when inflation is within the zone of discretion but react aggressively otherwise. Recursive estimates from the preferred model reveal that overall there has been a subdued reaction to inflation, output and financial conditions amidst the increased economic uncertainty of the 2007-2009 financial crisis. Chapter 7 compares forecast performance of linear and nonlinear monetary policy rules estimated in the two previous chapters but rewritten in their backward looking versions. Recursive forecasts values are computed for 1- to 12-step ahead for the out-of-sample period 2006:01 to 2010:12. For the nonlinear models we use bootstrap method for multi-step ahead forecasts as opposed to point forecasts approach used for linear models. The aim is to evaluate the performance of three competing models in an out of-sample forecasting exercise. Overall ranking reveals the superiority of the nonlinear model that distinguishes between downward and upward movements in the business cycles in closely matching the historical record. As such, forecasting performance tests reveal that the SARB pays particular attention to business cycles movements when setting its policy rate. / Thesis (PhD)--University of Pretoria, 2011. / Economics / unrestricted

Magister Commercii - MCom / This study estimates the impact of the real exchange rate’s performance on economic growth in South Africa from 1990 to 2016 based on quarterly data. A review of the literature reveals that the real exchange rate can have either a positive or a negative effect on economic growth. The empirical analysis began with testing for stationarity of the variables by applying the Augmented Dickey-Fuller (ADF) and Phillips Peron (PP) tests. This was followed by the co-integration test of the model. The unit root test results show that all variables except the exchange rate were integrated at order one, that is I (1), while exchange rate volatility is integrated at order zero that is I(O). Also, the co-integration analysis indicated that variables are co-integrated. Employing the Vector Error Correction Model (VECM) technique to estimate the results, the relationship between real exchange rate and economic growth was estimated. Findings further show that in the short run, economic growth is positively responsive to the real exchange rate while in the long run, a negative relationship exists between the two variables. The results in the short run suggest that the exchange rate hurts economic growth. A 1% point increase in the real exchange rate (RER) causes a reduction in economic growth by 379 per cent. A rise in the RER affects the trade balances between exports and imports, which results in more imports in the country than exports and the devaluation of the rand stipulates imports in the short run, which leads to the gross domestic product to increase. The study recommends that the South African Reserve Bank (SARB) Monetary Committee, together with the South African government, should develop a policy that will pursue a prudent monetary policy. A stabilise real exchange rate will enhance the economic activities that will attract foreign direct investment (FDI) and create an environment conducive to investment that will boost economic growth of South Africa.

Dissertation (LLM)--University of Pretoria, 2014. / gm2015 / Centre for Human Rights / LLM / Unrestricted

Even though major advances in economic theory and modelling have in some cases furthered our understanding of how the economy works, the system as a whole has become more complex. If policymakers had perfect knowledge about the actual state of the economy, the various transmission mechanisms as well as the true underlying model, monetary intervention would be greatly simplified. In reality, however, the monetary authorities have to contend with considerable uncertainty in relation to the above-mentioned factors. This said, uncertainty has mostly been neglected in both the theoretical and empirical literature focusing on monetary policy analysis. Nonetheless, findings from a review of theoretical literature that does exist on this topic suggest that optimal central banks act more conservatively when faced with uncertainty. Similarly, empirical findings from the literature also favour conservatism. However, there is some evidence to suggest that this is not always the case. These results suggest that central banks do not always act optimally when faced with uncertainty. The limited number of industrial country cases examined prevents any generalised view from emerging. If anything, the literature findings suggest that central bank behaviour differs across countries. This thesis aims to contribute to the empirical literature by studying the effects of uncertainty on monetary policy in the developing country case of South Africa. In simplest terms, the thesis seeks to establish whether or not the South African Reserve Bank (SARB) responded optimally to uncertainty as suggested by theoretical models thereof. To this end, the thesis employs a theoretical model which resembles a structural rule-based approach. The optimal interest rate rule was derived given a set of structural equations relating to demand, the Phillips curve and the real exchange rate. To incorporate uncertainty, it is assumed that the coefficients are dependent on the variances of the exogenous variables, namely inflation, the output gap and the exchange rate. The uncertainty adjusted model allows us to investigate whether monetary policy is more aggressive or passive when uncertainty about the relevant exogenous variable increases. Inflation, output gap and exchange rate uncertainty estimates were derived through GARCH-model specifications related to the structural equations as defined in the theoretical model. The investigation considered both indirect and direct uncertainty effects with a sample period stretching from 1990 to 2011. The findings reported in this thesis provide strong evidence in support of the notion that uncertainty plays a significant role within the South African monetary policy landscape and contributes towards explaining the SARB’s actions. Furthermore, the results suggest that the SARB did in fact act optimally in responding more conservatively to target variable fluctuations on average. Also, the findings could potentially strengthen the case for inflation targeting as a monetary policy regime, as the results indicate a marked decline in the effects of uncertainty under inflation targeting than before. / Economics / D. Com. (Economics)

Money Service Businesses provide people and institutions with a way to send money (remit) from one place to another. This service is most often associated with migrants, who typically wish to send money or value home. Remittances can be sent both on a domestic and on a cross-border basis. The methods used to remit money or value can be used for both legitimate and illegal purposes. The question posed by this research is whether the Money Service Businesses that operate in South Africa and provide crossborder remittance services are adequately regulated, to ensure that it is not used for the purposes of money laundering and/or terror financing. Copyright / Dissertation (MPhil)--University of Pretoria, 2010. / Accounting / unrestricted

Even though major advances in economic theory and modelling have in some cases furthered our understanding of how the economy works, the system as a whole has become more complex. If policymakers had perfect knowledge about the actual state of the economy, the various transmission mechanisms as well as the true underlying model, monetary intervention would be greatly simplified. In reality, however, the monetary authorities have to contend with considerable uncertainty in relation to the above-mentioned factors. This said, uncertainty has mostly been neglected in both the theoretical and empirical literature focusing on monetary policy analysis. Nonetheless, findings from a review of theoretical literature that does exist on this topic suggest that optimal central banks act more conservatively when faced with uncertainty. Similarly, empirical findings from the literature also favour conservatism. However, there is some evidence to suggest that this is not always the case. These results suggest that central banks do not always act optimally when faced with uncertainty. The limited number of industrial country cases examined prevents any generalised view from emerging. If anything, the literature findings suggest that central bank behaviour differs across countries. This thesis aims to contribute to the empirical literature by studying the effects of uncertainty on monetary policy in the developing country case of South Africa. In simplest terms, the thesis seeks to establish whether or not the South African Reserve Bank (SARB) responded optimally to uncertainty as suggested by theoretical models thereof. To this end, the thesis employs a theoretical model which resembles a structural rule-based approach. The optimal interest rate rule was derived given a set of structural equations relating to demand, the Phillips curve and the real exchange rate. To incorporate uncertainty, it is assumed that the coefficients are dependent on the variances of the exogenous variables, namely inflation, the output gap and the exchange rate. The uncertainty adjusted model allows us to investigate whether monetary policy is more aggressive or passive when uncertainty about the relevant exogenous variable increases. Inflation, output gap and exchange rate uncertainty estimates were derived through GARCH-model specifications related to the structural equations as defined in the theoretical model. The investigation considered both indirect and direct uncertainty effects with a sample period stretching from 1990 to 2011. The findings reported in this thesis provide strong evidence in support of the notion that uncertainty plays a significant role within the South African monetary policy landscape and contributes towards explaining the SARB’s actions. Furthermore, the results suggest that the SARB did in fact act optimally in responding more conservatively to target variable fluctuations on average. Also, the findings could potentially strengthen the case for inflation targeting as a monetary policy regime, as the results indicate a marked decline in the effects of uncertainty under inflation targeting than before. / Economics / D. Com. (Economics)