Eliphas Ndou

The Impact of Capital Flows on Credit Extension: The Counterfactual Approach

∙ See the effects of capital flow shocks on credit growth, economic growth and the real effective exchange rate. ∙ Use the counterfactual analysis to show the extent to which credit growth, economic growth and changes in the REER would have evolved in the absence of capital flows. ∙ Show the importance the amplification effects of commodity prices on the responses of credit growth to capital flow shocks.

The Inverse Transmission of Positive Global Liquidity Shocks into the South African Economy

• Understand how the foreign repercussion process occurs as envisaged by the use of global liquidity injections • Ascertain what evidence is available regarding the inverse transmission of global liquidity shocks into the South African economy • Determine the differences in the impact of various rounds of G3 central bank liquidity injections via quantity and price measures on domestic credit, inflation and the policy rate • Examine the role of domestic labor markets in the adjustments to external shocks • Compare how the impact of the US Fed and ECB bank balance sheet shocks exert inverse transmission effects on the domestic economy • Apply counterfactual scenarios to assess the impact of the inverse transmission and the role of commodity price dynamics

Stock Price Returns, Volatility and Costly Asset Price Boom–Bust Episodes

• Understand how stock market price returns and volatility exert different impacts on macroeconomic variables. • Distinguish between the adverse effects of stock price volatility shocks and those exerted by a positive monetary policy shock. • Assess the impact of unexpected stock returns shocks on inflation and economic growth. • Establish how the contributions of stock price returns and volatility reinforce each other. • Understand in which periods different techniques identify asset price booms and busts. • Learn what the Taylor rule suggests about monetary policy settings during asset price booms. • Assess whether all booms in South Africa are followed by costly busts. In cases where they are, the cumulative output costs and the severity of equity price and house price busts.

Credit Growth Threshold and the Nonlinear Transmission of Credit Shocks

• The growth rate at which the credit growth rate threshold occurs • The credit regimes and their non-linear and asymmetric effects in transmitting shocks • The threshold effects on the pace and magnitudes of the policy rate adjustments in curbing inflationary pressures • The asymmetric effects of the threshold on inflation shocks and economic growth • Consideration of nonlinearity effects induced by the thresholds and by policy

Capital Flow Episodes Shocks, Global Investor Risk and Credit Growth

• Show the importance of classifying capital flow episodes, separating between foreign and domestic investor activities • Understand the channels of transmission of capital waves and how they impact real economic activity and credit growth • Show how changes in global risk shocks impact capital flow surges, sudden stop episodes, credit growth and real activity • Demonstrate the significance of economic costs exerted by capital flow surges, sudden stops and capital flight and retrenchments • Show costs associated with capital flows driven by domestic and foreign investor behavior. • Examine the role of commodity prices and the exchange rate in amplifying credit growth based on the counterfactual scenarios • Establish whether capital flow surges and sudden stop shocks lead to the reallocation of sectorial credit shares

Credit Conditions and the Amplification of Exchange Rate Depreciation and Other Unexpected Macroeconomic Shocks

• See the different impacts of CCI on credit to households and companies. • Examine the fluctuations and nonlinearities induced by the CCI on GDP growth and repo rate responses to inflation before, during and after the global financial crisis. • Look at the impact of tight credit conditions on credit driven demand shocks and propagation of rand depreciation shocks on inflation and the exchange rate pass-through

Credit Supply Shocks and Real Economic Activity

• See how credit supply shock drives real economic activity cycles • Credit market dynamics explain slowing growth of GDP, credit and capital formation • Adverse credit demand contributions slow economic activity • Credit demand shocks contributions elevate and depress credit growth and capital formation • Sovereign bond yields impact credit supply shock contributions to GDP • High government bond yields impact credit supply conditions

Adverse Credit Supply Shocks and Weak Economic Growth

• Know the benefits of using the pure sign restriction and penalty function sign restriction approaches in VAR • Distinguish between adverse credit supply effects, tighter monetary policy and adverse credit demand shocks on lending spreads, GDP and credit growth • Show that adverse credit supply shock is partly responsible for the weak economic growth recovery and elevated loan spreads • Determine the role of global economic uncertainty shocks on elevated lending spreads

Financial Regulation Policy Uncertainty and the Sluggish Recovery in Credit Growth

• Interaction between elevated financial regulation policy uncertainty, lending rate margins, credit risk and the sluggish recovery in credit growth in South Africa • The extent to which lending spreads are driven by financial regulatory policy uncertainty • Whether the impact of financial regulatory policy uncertainty complements or neutralizes monetary policy effects • The impact of financial regulatory policy uncertainty on funding margins, lending spreads and provisions for credit losses

Capital Flows and the Reallocation of Credit from Companies

• Establish whether the substitution effects induced by the composition of capital flows benefits credit to companies • Examine the potential financial stability risks involved and how regulatory and macro-prudential tools can respond to mitigate these risks • Look at whether the composition of capital flows amplifies the responses of the repo rate to positive inflation shocks