In recent years, sub-Saharan Africa has begun to enjoy sustained growth. But continued financial integration might expose these economies to financial contagion. This study models monthly interest-rate volatility for six African nations, from 1992 to 2011, using Generalized Autoregressive Conditional Heteroskedasticity (GARCH) methods. We then examine spillovers both from the West and within the region using multivariate methods. We find that a standard GARCH or GARCH-in-Mean model performs as well as asymmetric alternatives, but that there is little evidence of international transmission outside of Southern Africa. This suggests that these countries still have a long way to go before they achieve true financial integration with the West.
This study formulates a small macro-model of the South African economy in order to investigate the relative performance of optimal monetary policy rules that respond to speculative bubbles. The model consists of two nonlinear speculative bubbles: the stock price and the exchange rate bubbles. These speculative bubbles interact with the IS curve, the Phillips curve and asset prices. Our findings show that policy rules that respond to speculative bubbles perform better than rules that do not respond to bubbles, although this comes at higher welfare loss. This suggests that it may be prudent for the South African Reserve Bank to react to asset price bubbles in its interest rate setting.
This paper examines how domestic, foreign, private and public investments affect income-inequality through financial intermediary dynamics. With the exception of financial allocation efficiency, financial channels of depth and activity are good for the poor as they diminish estimated household income-inequality. Financial size does not have a significant income-redistributive effect. Financial efficiency has a disequalizing effect, implying policies designed to improve the allocation of mobilized funds only benefit the rich to the detriment of the poor. The use of financial and investment dimensions previously missing in the literature provide new insights into the finance-inequality nexus. Policy implications are discussed.
The government of Kenya is implementing strategies that will deepen the financial sector with the aim of propelling economic growth. However analytical and empirical evidence shows that in Kenya, financial deepening does not cause economic growth as expected. This paper seeks to establish the points of disconnect in the finance-growth transmission channel. Using the VAR approach, the analysis reveals that enhanced financial deepening leads to increased interest rates. Increased interest rates in turn lead to increased savings mobilization. However, these savings do not influence capital formation. Moreover, capital formation does not lead to enhanced economic growth.