Achieving price, financial and macro-economic stability in South Africa : the role of the central bank balance sheet, macro-prudential tools, financial regulations and analysis

Preface Acknowledgements Contents About the Authors List of Figures List of Tables Chapter 1: Introduction 1.1 Why Did We Write This Book? 1.2 Role of Positive Capital Inflows Shocks in the Banks’ Credit Constraints, Credit Growth and Transmitting the SA–US Interest Rate Differential to Domestic GDP Growth 1.3 Relevance of the Credit Conditions Channel in the Transmission of Various Shocks 1.4 Role of Economic Thresholds in Guiding Policy Settings and Decisions 1.5 Impact of Synchronised Credit and House Price Booms on the Monetary Policy Response to Inflationary Pressures 1.6 Role Played by Contractionary Fiscal Policy Shocks in Credit Growth Dynamics 1.7 Interaction Between Macro-prudential Policy and Monetary Policy and the Role of the Bank Risk Channel 1.8 Effectiveness of the Countercyclical Capital Buffer 1.9 Role of the Central Bank Balance Sheet 1.10 Selected Issues Regarding Large-Scale Asset Purchases by a Central Bank 1.11 This Book Does Not Conduct a Comparative Analysis with Other Countries 1.12 Interaction Between Financial Regulation, Macro-prudential Tools and Monetary Policy 1.13 Information Content of the Money Demand and Flow-of-Funds Analysis for Financial Analysis and Monetary Policy References Chapter 2: A Review of the Central Bank Balance Sheet Tools That Can Be Deployed to Assist in the Achievement of Price, Financial and Macro-economic Stability 2.1 Introduction 2.2 What Are the Key Channels Through Which Large-Scale Asset Purchases Are Transmitted? 2.3 When Are the Right Conditions for the Central Bank to Pursue Large-Scale Asset Purchases? 2.4 Why Does the Size, Duration and Composition of Asset Purchases Matter? 2.5 Is Quantitative Easing Only Effective at the Zero-Lower Bound? 2.6 Are Open-Ended Large-Scale Asset Purchases Effective? 2.7 Does Forward Guidance Reinforce the Effectiveness of Large-Scale Asset Purchases? 2.8 Why Should the SARB Conduct Large-Scale Asset Purchases? 2.8.1 Large-Scale Asset Purchases Have Not Been Inflationary in the US, euro area, the UK, Switzerland and Japan and Other Countries as Initially Thought 2.9 Role of the Public Investment Corporation Balance Sheet 2.10 What Are the Benefits of Increasing the Level of Foreign Currency Reserves? 2.11 Is It Important for the SARB to Lengthen the Maturities on Repurchase Agreements? 2.12 How Should the Bank Manage Excess Reserves Emanating From the LSAPs and Reserves Accumulation Policies? 2.13 Conclusion and Policy Implications References Part I: Capital Flow Episodes, Fiscal Shocks, Commodity Price and House Price Boom Effects on Credit Growth Dynamics Chapter 3: Do Capital Inflows Relieve Banks’ Credit Constraints and Boost Credit Growth? Evidence from Credit Conditions and Bank Credit Risk 3.1 Introduction 3.2 Did Adverse Credit Conditions Since 2007Q3 Impact the Ability of Positive Capital Inflows to Influence Credit Growth Dynamics? 3.2.1 Do Credit Conditions Impact the Transmission of Portfolio Banking Flows? 3.2.2 Evidence from Positive Shock Effects Due to Portfolio Inflow For the Period Beginning 2008Q1 3.2.3 Evidence from a Recession Shock 3.3 Inferences from a Vector Autoregression (VAR) Model and a Counterfactual Approach 3.3.1 Are the Results Sensitive to Changes in the Model Size? 3.4 Conclusion and Policy Implications References Chapter 4: Credit Conditions and the Amplification of Macro-economic Responses to Unexpected Shocks: Implications for Monetary Policy 4.1 Introduction 4.2 How Do Credit Conditions and Lending Standards Impact GDP Growth? 4.3 Fluctuations and Non-linearities 4.3.1 How Much Fluctuations Do Credit Conditions Induce on Other Macro-economic Variables? 4.3.2 Is There a Non-linear Effect of Credit Conditions on GDP Growth? 4.4 How Big Are the Amplifications? 4.4.1 How Would Inflation Respond to the Exchange Rate Depreciation Shocks in the Absence of the Credit Conditions Index? 4.5 Implications for the Monetary Policy Conduct 4.5.1 Is the Repo Rate Reaction to Positive Inflation Shocks Amplified or Dampened by Tight Credit Conditions and Subdued GDP Growth? 4.5.2 Historical Decomposition and Counterfactual Analysis 4.6 Conclusion and Policy Implications References Chapter 5: Output Growth and Inflation Responses to Single and Double Credit Growth Threshold Effects in South Africa 5.1 Introduction 5.2 Brief Literature Review of Linear and Non-linear Models with Financial Frictions 5.2.1 The Non-linear Effects of Money and Credit Growth 5.3 Methodology 5.3.1 Data and Stylised Facts 5.3.2 Non-linearity Tests 5.3.3 Does the Sectorial Credit Growth Threshold Follow a Non-linear Process? 5.3.4 Credit Growth Threshold Levels 5.4 Empirical Analysis 5.4.1 Aggregate Credit Growth Regime-Dependent Impulse Responses 5.4.2 Are the Responses Different When Considering Sectorial Credit Growth? 5.4.3 Do Mortgage Credit Growth Regimes Exert Different GDP Growth and Inflation Responses? 5.5 Robustness Analysis: Sensitivity to Model Size 5.5.1 Household Consumption Expenditure Growth and Credit Growth Thresholds 5.6 Non-Linear Impulse Responses to Credit Growth Regimes 5.6.1 Robustness on Non-Linearities Exerted by Credit Growth Regimes 5.7 Conclusion and Policy Implications References Chapter 6: Do Contractionary Fiscal Policy Shocks Transmitted via GDP Growth Dampen Credit Growth? 6.1 Introduction 6.2 Evidence from the Endogenous–Exogenous Model 6.3 Evidence from the Counterfactual VAR Analysis Approach 6.3.1 Do Different Tax Components Exert Different Effects? 6.4 Conclusion and Policy Implications Reference Chapter 7: Do Synchronised Credit Growth and House Price Growth Booms Impact the Monetary Policy Reaction to Inflationary Pressures? 7.1 Introduction 7.2 In Which Periods Did Boom and Non-boom Episodes in Credit Growth and House Price Growth Occur? 7.2.1 How Long Is the Duration of Financial Downturns on Average over the Sample Period? 7.3 Does the Mortgage Credit Growth Boom Matter for the Transmission of House Price Growth Boom Shocks to Credit Growth and GDP Growth? 7.3.1 Does the Synchronicity of House Price Growth and Credit Growth Booms Impact the Policy Responses to Positive Inflation Shocks? 7.3.2 What Are the Implications of Boom and Non-boom Episodes When Inflation Is Above 6 Per Cent? 7.4 Conclusion and Policy Implications References Chapter 8: Do Synchronised Boom and Non-boom Episodes in Credit Growth, Commodity and Equity Prices Impact the Response of the Repo Rate to Positive Inflation Shocks? 8.1 Introduction 8.2 The Identification of Cycles and Boom Episodes 8.3 Do Synchronised Boom Episodes Matter for Monetary Policy Responses to Positive Inflation Shocks? 8.3.1 Do Synchronised Non-booms Matter for the Monetary Policy Responses to Positive Inflation Shocks? 8.3.2 Do Synchronised Commodity Price Growth and Credit Growth Non-booms Matter for the Monetary Policy Responses to Positive Inflation Shocks? 8.4 Conclusion and Policy Implications References Chapter 9: To What Extent Do Capital Inflows Impact the Response of South African Economic Growth to Positive SA-US Interest Rate Differential Shocks? 9.1 Introduction 9.2 Why Is the Focus on the Capital Inflow Dynamics Important for This Study? 9.3 Empirical Results 9.3.1 Evidence from a Three-Variable Counterfactual VAR Model 9.3.2 Evidence from the Four-Variable Counterfactual VAR Model 9.3.3 Evidence Based on a Five-Variable VAR Model 9.3.4 Does the Role of the Capital Inflow Channel Vary Depending on Whether It Is Equity Capital Inflows or Debt Capital Inflows? 9.4 Conclusions and Policy Implications References Part II: The Interaction of the South African Reserve Bank, Public Investment Corporation and Private Banks’ Balance Sheets: Effects on Fiscal and Monetary Policy Tools Chapter 10: Is There a Compelling Case to Increase the SARB Holdings of Government Securities to Supplement Interest Income and Neutralise Losses Due to Foreign Investments and Foreign Currency Reserves Accumulation? 10.1 Introduction 10.2 The Main Channels of Transmission of Balance Sheet Policy 10.3 Stylised Facts on Selected Central Bank Balance Sheet and Government Debt Indicators 10.4 SARB Balance Sheet, Selected Financial and Macro-economic Variables 10.5 What Is the Impact of Positive Shocks to the SARB Balance Sheet on Ten-Year Yields, Term Spread and Weighted Government Debt Costs? 10.6 Do Positive Shocks to SARB Assets Growth Exert Asymmetric Effects on the Rand/US$ Exchange Rate and Inflation? 10.7 What Are the Effects of SARB LSAPs on Employment Growth, Unemployment Rate, Inequality and Other Key Macro-economic Variables? 10.8 Conclusion and Policy Implications Appendix References Chapter 11: Are the Amplification Effects of Positive Shocks to SARB Assets Growth and Forex Reserves Accumulation on Long-Term Yields Dependent on Government Debt Growth Regimes? 11.1 Introduction 11.2 The Impact of Government Debt Growth Regimes on Long-Term Government Bond Yields 11.3 Are the Amplification Effects of Positive Shocks to SARB Assets Growth and Forex Reserves Accumulation on Long-Term Yields Dependent on Government Debt Growth Regimes? 11.4 What Are the Effects of Government Debt Growth Thresholds on the R/US$ Exchange Rate and Inflation? 11.5 Are the Amplification Effects of Positive Shocks to SARB Assets Growth and Forex Reserves Accumulation on Long-Term Yields Dependent on Government Debt Growth Regimes? 11.6 Conclusion and Policy Implications References Chapter 12: Does an Increase in Government Debt Threaten Economic Growth Recovery Via Tightening Credit Conditions? 12.1 Introduction 12.2 Empirical Results 12.2.1 The Effects of a Tight Credit Conditions Shock 12.2.2 The Role of Credit Conditions in Transmitting Positive Government Debt Shocks to GDP, Household Consumption and Gross Fixed-Capital Formation 12.3 Conclusion and Policy Implications Reference Chapter 13: Foreign Currency Reserves: Do They Contribute to GDP Growth and Employment Growth? 13.1 Introduction 13.2 Stylised Facts on Foreign Currency Reserves Accumulation and Select Macro-economic Indicators 13.3 The Impact of Positive Shocks to Reserves Accumulation on the Unemployment Rate, GDP Growth and Employment Growth 13.4 Historical Contributions of Positive Forex Reserves Shocks to the Unemployment Rate, GDP Growth and Employment Growth 13.5 Do Large-Scale Asset Purchases by the SARB Propagate the Effects of Forex Reserves on the Unemployment Rate, GDP Growth and Employment Growth? 13.6 The Asymmetric Effects of Positive Shocks to Forex Reserves on Various Macro-economic Indicators 13.7 The Impact of Transitory and Permanent Shocks to Foreign Currency Reserves Accumulation 13.8 Conclusion and Policy Implications Appendix References Chapter 14: What Is the Impact of Large-Scale Asset Purchases and Private Banks’ Balance Sheets? 14.1 Introduction 14.2 Private Banks’ Balance Sheets, Deposit Breakdown and Money Market Rates 14.3 Banks’ Liquidity Requirement, Repo Rate and Other Money Market Rates 14.4 Does the Increase in the Banks’ Liquidity Requirements Propagate the Effects of an Accommodative Monetary Policy Stance? 14.5 Do Large-Scale Asset Purchases of Government Securities by the SARB Exert Similar Effects to Positive Shocks to the Banks’ Liquidity Requirements, the Repo Rate, and the Money Market and Lending Rates? 14.6 Do LSAPs and an Increase in the Banks’ Liquidity Requirements Affect the Interest Rate Pass-Through and Bank Loan Intermediation Mark-Up? 14.7 Do LSAPs Curb Excess Liquid Asset Holdings by Banks? 14.8 Conclusion and Policy Implications Appendix References Chapter 15: Is the Interest Rate Corridor an Effective Instrument to Dampen the Accumulation of Excess Reserves and the Inter-bank Rate Volatility? 15.1 Introduction 15.2 What Are the Key Features of the SARB Operational Framework for Monetary Policy? 15.3 What Are the Key Features of the Market of the South African Reserve Bank Balances? 15.4 What Is the Nature of the Association Between the Repo Rate and Banks’ Deposits with the SARB? 15.5 To What Extent Do Aggregate Balances Change When Monetary Policy Is Adjusted? 15.6 How Effective Is the South African Policy Rate Corridor System for Inter-bank Rates? 15.7 Where Does the Excess Reserves Lie Within the Interest Rate Corridor System? 15.8 Is the Sabor and Overnight Forex Rate Volatility in Anyway Associated with Banks’ Excess Deposits at the SARB? 15.9 Conclusion and Policy Implications Appendix References Chapter 16: Is the Impact of an Unexpected Positive Required Reserves Ratio Shock on Inflation Expectations Different from That Due to Positive Excess Liquid Asset Holdings and Forex Reserves Shock? 16.1 Introduction 16.2 Empirical Evidence 16.3 How Robust Is the Evidence of the Decline in Inflation Expectations? Evidence from the Inclusion of the Exchange Rate in the Model 16.3.1 Evidence from a VAR Model with the Required Reserves Ratio as an Exogenous Variable 16.3.2 Evidence from a Modified Pentecôte and Rondeau (2015) Model 16.3.3 Evidence from the Counterfactual Analysis 16.4 Conclusion and Policy Implications References Chapter 17: How Potent Is the Required Reserves Tightening Shock Impact on Funding and Consumer Interest Rates? 17.1 Introduction 17.2 Features of South African Banking System: Unchanged Required Reserves Ratio 17.3 The Liquidity Channel of the Transmission of Changes in the Required Reserves 17.4 How Significant Is the Cost Channel via the Consumer Deposit and Lending Rates due to the Tightening RR ratio Shock? 17.5 What Do Rates from Varied Funding Market Segments Reveal About Other Funding Rate Responses? 17.6 Policy Implications from Inter-bank and Wholesale Funding Markets 17.7 Policy Implications of the Treasury Bill Rate Response 17.8 The Role of the Excess LAH as a Propagator of the RR Ratio Tightening Policy Shock 17.9 Conclusion and Policy Implications References Chapter 18: The Impact of Large-Scale Asset Purchases on Non-residents’ Purchases of South African Assets 18.1 Introduction 18.2 The Impact of Positive Shocks to the SARB Balance Sheet on Non-residents’ Cumulative Net Purchases of South African Shares and Bonds 18.3 Do Large-Scale Asset Purchases Propagate the Effects of Non-residents’ Purchases of Bonds on the Exchange Rate Volatility and Its Components? 18.4 Are There Asymmetric Effects Induced by Positive Shocks to SARB Assets on the R/US$ Exchange Rate Volatility? 18.5 Conclusion and Policy Implications References Chapter 19: Large-Scale Asset Purchases and Activity in the Primary and Secondary Share and Bond Markets 19.1 Introduction 19.2 How Have Activity and Prices in the Bond and Share Markets Evolved over Time? 19.3 Large-Scale Asset Purchases, Liquidity and Issuance in the Corporate Share Markets 19.4 The Impact of Large-Scale Asset Purchases, Liquidity and Issuance in the Corporate Share Markets: Evidence from VAR Model 19.5 The Impact of Large-Scale Asset Purchases, Liquidity and Issuance in the Corporate Share and Bond Markets: Evidence from the Modified Kilian and Vigfusson (2011) Approach 19.6 Do Large-Scale Asset Purchases Propagate the Impact of Manufacturing Production Growth on Liquidity and Issuance in the Corporate Share and Bond Markets? 19.7 The Effects of LSAPs on the Financing Conditions of Corporations 19.8 Conclusion and Policy Implications Appendix References Chapter 20: The Stock and Flow Effects of Large-Scale Asset Purchases: Evidence from Persistent Versus Transitory Shocks 20.1 Introduction 20.2 The Effects of Stocks and Flow Effects on Ten-Year Yields: Evidence from the Historical Decompositions 20.3 Persistent Versus Non-persistent Effects of Stock and Flow Effects of SARB Asset Purchases on Various Financial and Macro-economic Indicators 20.4 Conclusion and Policy Implications References Chapter 21: Is There a Case for the Public Investment Corporation to Increase Its Holdings of Government Debt Securities? 21.1 Introduction 21.2 What Is the Impact of the Incremental Effect of Positive Shocks to the Share and Growth Rate of Government Bonds in the PIC Balance Sheet on the Ten-Year Yield? 21.3 Do Bond Purchases by the PIC Reinforce the Positive Shock Effects of LSAPs by the SARB? 21.4 Persistent Versus Non- persistent Effects of Government Bond Purchases by the PIC on Ten-Year Government Bond Yields 21.5 Conclusion and Policy Implications References Chapter 22: Has the Inflation Target Band Impacted the Natural Rate of Unemployment in South Africa? Evidence from the Accelerationist Philips Curve 22.1 Introduction 22.2 Model Approach 22.3 Does the Inflation Target Band Impact the NAIRU? 22.4 Does the Expansionary Monetary Policy Shock Impact the Unemployment Rate When It Is Above the NAIRU Calculated Using the 4.5 Per Cent Target? 22.4.1 The Models Are Specified as Follows 22.5 Which Channel Transmits Accommodative Monetary Policy Shocks to the Unemployment Rate Above the NAIRU? 22.5.1 What Are the Roles of GDP Growth, Investment Growth and Credit Growth Channels? 22.5.2 The Role of the Economic Growth Channel 22.5.3 The Role of the Unit Labour Costs Channel 22.5.4 The Role of the Exchange Rate Channel 22.6 Conclusion and Policy Implications References Part III: Financial Regulations, Selected Macroprudential Tools, the Quality of the Banks’ Loan Books and the Transmission of Capital Flow and Monetary Policy Shocks Chapter 23: Do Financial Regulatory Tools Impact the Transmission of Capital Inflow Shocks into Credit Extension and Induce a Reallocation of Sectoral Credit Shares? 23.1 Introduction 23.2 What Is the Impact of Capital Inflows and Outflows on Credit Growth? 23.2.1 What Is the Impact of Gross Capital Inflow and Outflow Shocks on Excesses of CAR and LAH? 23.2.2 The Role of Excess CAR and Excess LAH on Credit Growth Dynamics 23.2.3 Evidence from the Endogenous–Exogenous VAR Approach 23.2.4 The Transmission of Shocks via Sectorial Credit Reallocations Based on the Endogenous–Exogenous Approach 23.2.5 How Robust Are the Channels of Transmission via Sectorial Credit Reallocation? 23.2.6 How Different Is the Role of Excess LAH? 23.2.7 Does the Evidence of the Role of Excess LAH Differ When the Endogenous–Exogenous Approach Is Used? 23.2.8 How Potent Is the Sectorial Credit Reallocation via the Excess LAH Channel? 23.2.9 Are the Amplification Effects Exerted by Excess LAH and Excess CAR Like Those of Monetary Policy Shocks? 23.3 Conclusion and Policy Implications References Chapter 24: What Role Do Non-performing Loans Play in Propagating the Excess Liquid Asset Holdings Shock Effects on Sectoral Credit Re-allocation? 24.1 Introduction 24.2 Evidence of the Amplification Role of the Excess LAH on Aggregate Credit Growth 24.2.1 Does the Excess Liquidity Holdings Matter for the Transmission of Adverse Financial Shocks Effects to GDP Growth? 24.2.2 The Different Role of Excess LAH Shocks and Non-performing Loans on Sectorial Credit Shares 24.3 Conclusion and Policy Implications References Chapter 25: Is the Excess Capital Adequacy Ratio Beneficial in Neutralising Excessive Credit Growth and Inflationary Pressures? What Are the Implications for Monetary and Financial Policy? 25.1 Introduction 25.2 Evidence of the Amplification Role of Excess CAR 25.2.1 The Role of Excess CAR in Amplifying Selected Economic Responses Pre- and Post-2007 25.2.2 Did Excess CAR Cushion or Propagate the Response of Credit Growth and GDP Growth to the Adverse Financial Shock in 2007Q3? 25.2.3 If Excess CAR Dampened Inflationary Pressures, Did It Neutralise Repo Rate Adjustments? 25.2.4 The Counterfactual Scenarios 25.2.5 Evidence from the Exogenous–Endogenous Model 25.2.6 Implications for Monetary Policy Responses to Positive Inflation Shocks 25.2.7 What Does the Historical Decomposition Reveal? 25.3 Conclusion and Policy Implications References Chapter 26: Do Non-Performing Loans Propagate the Transmission of Monetary Policy Tightening Shocks to Sectorial Credit? 26.1 Introduction 26.2 Evidence of the Amplification Role of Non-Performing Loans on Credit Growth Dynamics 26.2.1 Does the Quality of Loans Matter for the Transmission of Adverse Financial Shocks Effects to GDP Growth? 26.2.2 Is There a Changing Role of NPLs Post-2008 in Transmitting Positive Shocks to Credit Growth? 26.3 What Are the Amplification Effects of Monetary Policy Tightening by NPLs on Aggregate Credit Growth? 26.4 Conclusion and Policy Implications Appendix References Chapter 27: How Effective Is the Relaxation of the Countercyclical Capital Buffer at a Time When Other Residential Macro-prudential Tools Are Tight? 27.1 Introduction 27.2 What Can We Infer from the Evolution of Excess CAR, Sectoral Credit and Risk Weighted Assets? 27.3 The Construction of Mortgage Market Credit Condition Indices 27.4 How Does GDP and Inflation Respond to a Positive Shock to MMCIs? 27.5 GDP Growth Responses and the Propagation Role of MMCI and Excess CAR 27.6 Conclusion and Policy Implications Appendix References Part IV: Money Demand, Exchange Rate Depreciation Shocks, Household Wealth and Credit Conditions Chapter 28: Revisiting the Role of the Money Demand Function: Does the Shortfall in Money Demand Impact the Inflation Responses to the Exchange Rate Depreciation Shocks? 28.1 Introduction 28.2 Does the Conventional Money Demand Function Differ from the Augmented Specification with Financial Wealth Variables? 28.2.1 Are the Elasticities in the Money Demand Functions Time Varying? 28.3 Does the Excess Money Supply and Shortfall Impact the Transmission of Rand Exchange Rate Depreciation Shocks into Inflation? 28.4 The Role of the Shortfall and Excess Money Demand from the Model with Real Household Aggregate Wealth Shortfall 28.4.1 How Does the Money Demand Shortfall Impact The Rand Exchange Rate Depreciation Shocks Transmission into Inflation? 28.4.2 Evidence from the Money Demand Shortfall in Equations Augmented with Real Aggregate and Financial Wealth 28.4.3 The Asymmetric Effects of Conventional, Real Aggregate and Financial Wealth Shortfalls 28.5 Conclusion and Policy Implications References Chapter 29: Do the Shortfalls and Overhangs Derived from Money Demand in South Africa Augmented with Portfolio Balances Impact Inflation Dynamics? 29.1 Introduction 29.2 What Happened to Price/Earnings Ratios and Other Asset Prices? 29.2.1 Do International Portfolio Inflows Impact the Demand for Money? 29.2.2 Money Demand Function Specifications 29.3 Data 29.3.1 Johansen Cointegration Results 29.3.2 Do Excess Shortfall and Overhang from the Augmented Money Demand Functions Impact Inflation Dynamics? 29.4 Conclusion and Policy Implications References Chapter 30: Do the Exchange Rate Depreciation and Volatility Shocks Impact Money Demand in South Africa? 30.1 Introduction 30.2 Empirical Results 30.3 Does the Exchange Rate Volatility Channel Transmit the Exchange Rate Depreciation Shocks to Money Demand? 30.4 Conclusion and Policy Implications References Chapter 31: Does Economic Policy Uncertainty Impact Real Money Demand in South Africa? 31.1 Introduction 31.2 Empirical Results 31.3 Do Inflation Regimes Impact the Effects of Economic Policy Uncertainty Shocks on Inflation and GDP Growth? 31.4 What Is the Role of the Credit Conditions Channel in Transmitting Economic Uncertainty Shocks to Real Money Demand? 31.5 Conclusion and Policy Implications References Chapter 32: Is a Single Sectorial Credit Growth Threshold Too Restrictive? Evidence from the Output and Inflation 32.1 Introduction 32.2 Does Sectorial Credit Follow a Non-linear Process and What Are the Lower and Upper Thresholds? 32.3 Empirical Analysis 32.3.1 Evidence from Household Credit 32.3.2 Evidence from Corporate Credit 32.4 Conclusion and Policy Implications References Chapter 33: Does the Threshold for Household Debt Growth Matter for GDP Growth and the Response of Monetary Policy to Inflation Shocks? 33.1 Introduction 33.2 Does Growth in Household Debt Follow a Linear or Non-linear Process? 33.3 What Does the Threshold VAR Model Suggest About the Asymmetric Effects Introduced by the Household Debt Threshold? 33.3.1 Are Symmetric Effects Based on Cyclical Deviation Impacts? 33.3.2 Evidence Based on Bivariate Asymmetric Model 33.4 What Are the Implications of the Household Debt Threshold for Price Stability in the Inflation-Targeting Era? 33.5 Do Labour Market Conditions Act as a Conduit of Positive Inflation Shocks Depending on the Household Debt Regime? 33.6 Conclusion and Policy Implications References Part V: The Role of the Flow-of-Funds Approach in Monetary and Financial Policy Analysis Chapter 34: How Does a Tight Monetary Policy Shock Affect the Household Sector Intermediation? Evidence from Households’ Flow-of-Funds Data 34.1 Introduction 34.2 What Can Policymakers Learn from the Crosschecking Based on the Sectoral Perspective? 34.2.1 Are Households Net Borrowers or Lenders Based on the Flow-of-Funds and Are There Signs of Households Deleveraging? 34.2.2 Did the Periods of the Low Repo Rate Lead to an Improvement in the Households’ Financial Asset Flows After 2007Q2? 34.3 What Does VAR Evidence Suggest? 34.3.1 The Impact of a Tight Monetary Policy Shock on Household Sector Net Financial Assets Flows 34.3.2 Are There Any Differences in the Responses of the Households’ Asset Flow Components to an Unexpected Tight monetary Policy Shock? 34.3.3 Evidence from Non-Deposit Financial Assets Flows 34.3.4 Evidence from the Liability Flows 34.3.5 Variance Decompositions 34.3.6 To What Extent Do Financial Asset Flows Amplify and Dampen the Response of Macro-economic Variables to a Positive Economic Shock? 34.3.7 Does GDP Amplify or Dampen the Response of Households’ Liability Flows to a Tighter Monetary Policy Shock? 34.3.8 Do Household Financial Asset Flows Dampen the Response of GDP to Positive Inflation Shocks? 34.3.9 Do Household Financial Asset Flows Dampen the Response of the Monetary Policy Rate to Positive Inflation Shocks? 34.4 Conclusion and Policy Implications References Chapter 35: To What Extent Are the Public and Private Sector Financial Asset Flows Impacted by a Monetary Policy Tightening Shock? 35.1 Introduction 35.2 What Do the Descriptive Statistics Suggest? 35.3 To What Extent Does the Net Public and Private Sector Financial Asset Flows Respond to Monetary Policy Tightening Shocks? 35.3.1 The Impact of the Monetary Policy Tightening Shock on the Public and Private Sector Financial Asset Flows 35.3.2 What Are the Accumulated Effects? 35.3.3 Would the Results Change If the Net Public and Private Sector Financial Asset Flows Are Simultaneously Included in the Model? 35.3.4 What Proportion of Fluctuations in The Net Sector Flows Is Explained by Macro-economic Variables in the Model? 35.3.5 How Do Different Components of the Private and Public Sector Financial Liability and Asset Flows React to A Monetary Policy Tightening Shock? 35.3.6 Do Public Sector and Private Sector Net Financial Asset Flows Affect the Response of the Monetary Policy Rate to Positive Inflation Shocks? 35.4 Conclusion and Policy Implications Appendix References Chapter 36: Conclusion 36.1 Theme One: Capital Flow Episodes, Fiscal Shocks, Commodity Price and House Price Boom Effects on Credit Growth Dynamics 36.2 Theme Two: Interaction of the South African Reserve Bank, Public Investment Corporation and Banks’ Balance Sheets: Effects on Fiscal and Monetary Policy Tools 36.3 Theme Three: Financial Regulations, Selected Macro-prudential Tools, the Quality of Banks’ Loan Books and the Transmission of Monetary Policy Shocks 36.4 Theme Four: Money Demand, Exchange Rate Depreciation Shocks, Household Wealth and Credit Conditions 36.5 Theme Five: The Role of the Flow-of-Funds Approach in Monetary and Financial Policy Analysis Index