To read this content please select one of the options below:

South Africa’s economic response to monetary policy uncertainty

Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, Famagusta, Turkey)
Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
Charl Jooste (Department of Economics, University of Pretoria, Pretoria, South Africa)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 8 May 2017




The purpose of this paper is to study the evolution of monetary policy uncertainty and its impact on the South African economy.


The authors use a sign restricted SVAR with an endogenous feedback of stochastic volatility to evaluate the sign and size of uncertainty shocks. The authors use a nonlinear DSGE model to gain deeper insights about the transmission mechanism of monetary policy uncertainty.


The authors show that monetary policy volatility is high and constant. Both inflation and interest rates decline in response to uncertainty. Output rebounds quickly after a contemporaneous decrease. The DSGE model shows that the size of the uncertainty shock matters – high uncertainty can lead to a severe contraction in output, inflation and interest rates.

Research limitations/implications

The authors model only a few variables in the SVAR – thus missing perhaps other possible channels of shock transmission.

Practical implications

There is a lesson for monetary policy: monetary policy uncertainty, in isolation from general macroeconomic uncertainty, often creates unintended adverse consequences and can perpetuate a weak economic environment. The tasks of central bankers are incredibly difficult. Their models project output and inflation with relatively large uncertainty based on many shocks emanating from various sources. It matters how central bankers react to these expectations and how they communicate the underlying risks associated with setting interest rates.


This is the first study that looks into monetary policy uncertainty into South Africa using a stochastic volatility model and a nonlinear DSGE model. The results should be very useful for the Central Bank as it highlights how uncertainty, that they create, can have adverse economic consequences.



The authors would like to thank two anonymous referees for many helpful comments. However, any remaining errors are solely ours.


Balcilar, M., Gupta, R. and Jooste, C. (2017), "South Africa’s economic response to monetary policy uncertainty", Journal of Economic Studies, Vol. 44 No. 2, pp. 282-293.



Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

Related articles