African Finance Journal - Volume 9, Issue 1, 2007
Volumes & issues
Volume 9, Issue 1, 2007
Adjustment of commercial bank's interest rates and the effectiveness of monetary policy in South AfricaSource: African Finance Journal 9, pp 1 –20 (2007)More Less
The study uses the asymmetric error correction model as in Scholnick (1996) and two wholesale bank interest rates (prime interbank lending and the negotiable certificate of deposit rates), to examine how market interest rates adjust to changes in the SARB official rate under different policy regimes in South Africa. The study covered the period between 1973 and 2004, which was divided into six sub-periods to reflect the different monetary policy regimes in South Africa. The results indicate a varying degree of adjustment under the different regimes, but clearly show that there was greater speed of adjustment under regimes that stress more market-oriented policies as opposed to control measures. The response of market Interest rates to monetary policy was quick and with high magnitude which suggest a fairly efficient money market. The evidence on the asymmetric adjustment was weak. On the whole, the results of this study suggest that a market-oriented policy would be more effective in transmitting the effects of the Bank's monetary policy stance to the rest of the economy.
Source: African Finance Journal 9, pp 21 –38 (2007)More Less
Since the 1950s, export credits have been an important source of finance in most African countries, where they allow more to be invested with less sacrifice of current consumption. This paper provides a framework for comprehensively measuring indebtedness and gives, therefore, a basis for setting objective principles for debt reduction measures. The paper uses a stochastic frontier production function approach and the technical efficiency computation procedure to develop an indebtedness index for 46 African countries. Variations in indebtedness index are explained through a number of institutional, socio-political and geographical factors. The indebtedness index across African countries ranges from a minimum of 3.6% (South Africa) to a maximum of 92% (Zambia), with an average of 69%. Former French colonies exhibited higher indebtedness than former British, Portuguese, or Spanish colonies. Countries in the northern part of the continent are relatively more indebted, while those in the southern part have a lower indebtedness index. Countries which have experienced extended civil wars are generally less indebted. Finally, we measured a significantly higher indebtedness among those countries with dictatorial and corrupt governments.
Author Paul AlagidedeSource: African Finance Journal 9, pp 39 –52 (2007)More Less
Modelling stock return behaviour provides an important tool for analysing investment decisions and choices. In this paper, the assumption of linearity is tested for the returns of three North African markets-Egypt, Morocco and Tunisia. I find that the assumption of independently and identically distributed (iid) innovations is grossly violated in the North African data. Consequently, models of the GARCH family were employed to uncover the dynamics of the first two moments. The evidence indicates that volatility is persistent in our sample. Further non-linearity provides a starting point for understanding the dynamics of African stock returns. However, evidence to reject weak form efficiency requires more information than assumed in the literature due to the joint hypothesis problem inherent in all tests of market efficiency.
Does interest rate liberalisation really improve the allocative efficiency of investment? Kenya's experienceAuthor Nicholas M. OdhiamboSource: African Finance Journal 9, pp 53 –69 (2007)More Less
This study attempts to empirically investigate the impact of interest rate liberalisation on the efficiency of investment allocation in Kenya - using cointegration-based error-correction model. The study was motivated by the current debate on the efficacy of interest rate liberalisation on the one hand and the painful experience some countries have had with the liberalisation of interest rates on the other. Contrary to the results obtained from some previous studies, the results of this study find a distinct positive relationship between interest rate liberalisation and the efficiency of investment in Kenya. The study concludes that higher interest rates, which result from interest rate liberalisation, are likely to improve the average efficiency of investment in Kenya by transferring capital from projects with low returns to projects with high returns.