Money Supply and Economic Activity in South Africa – the Relationship Updated To 2011
This paper reconsiders the relationship between measures of money and measures of economic activity in the South African economy and the role of the Reserve Bank in moderating South African economic cycles. By using data for the past twenty years, the earlier analysis is updated and reassessed so that it is possible to see if the fundamental relationships between money, credit and economic activity have changed and whether the role of the Reserve Bank in managing economic activity has become more pivotal and constructive. One important difference noted is that broadly defined money (M3) does better in explaining economic activity between 2000 and 2011 than narrowly defined money. The opposite is true for the earlier sub-periods. The paper utilises a model of the money supply process to explain why the relationship between narrowly and broadly defined money changed after the year 2000 with regulations that encouraged the banks to reduce their demands for cash leading to an increase in the money multiplier. The paper concludes that the ability of the SA Reserve Bank to moderate the money and bank credit cycles, utilising interest rates as the primary instrument of monetary policy, remains as elusive as ever.
A historical perspective on the Federal Reserve's monetary aggregates
Data on the monetary aggregates are the fundamental raw material for research in many facets of economics and finance. Money demand modeling, measurement of money stock announcement effects, tests of the rationality of preliminary money stock forecasts and financial market efficiency, and comparison of alternative seasonal adjustment procedures are just a few such areas. Working in the spirit of Friedman and Schwartz, we chronicle the evolution of the Federal Reserve's monetary aggregates. Numerous changes in data sources, definitions, revision procedures, and seasonal adjustment methods suggest caution for all researchers using monetary aggregate time series data. A timeline compiled by Kenneth Kavajecz shows each redefinition, revision and special event that affected the monetary aggregates from 1960-1993.
A systemic approach to financial regulation A European perspective
The global financial crisis has pinpointed the relevance and the virulence of systemic risk in modern innovative finance. It is grounded in the propensity of credit markets to drift to extremes in close correlation with asset price spikes and slumps. In turn, such a propensity is nurtured by the heuristic behaviour of market participants under severe uncertainty. While plagued by disaster myopia, market participants spread systemic risk. Such adverse conditions have been magnified by financial innovations that have made finance predatory and capable of capturing regulators to annihilate prudential policies. Malfunctioning in finance is so deep and disorders are so widespread that sweeping reforms are the order of the day, if financial stability is viewed as a primary public concern. In this paper we argue that macro prudential policy should be the linchpin of relevant reforms. Being a top-down approach, it impinges both upon monetary policy and micro prudential policy.