impact of monetary policy on economic growth: a case study of south Africa ini hasil diskusi bersama untuk menyelesaikan studi kasus makroekonomi, khususnya kebijakan moneter

1. Group 8:
Bernadetha Christy Rosariana
Clara Geovanca
Michael Gabriel
Samuel Febrian
Sonia Ariwati
IMPACT OF MONETARY POLICY
ON ECONOMIC GROWTH:
A CASE STUDY OF SOUTH
AFRICA
(2201735041)
(2201736611)
(2201730993)
(2201823643)
(2201805230)
LM21

3. The economic growth of south Africa monetary policy instruments are
insignificant while their inflation is significant. There are two
different opinions about it in which the structuralists believes that
the correlation between the monetary sector and real economic
sector is very weak, while the orthodox economists believes the
opposite.
The monetary policy should have been able to create a more
favorable aspects especially with the natural resources and
capabilities that South Africa has.
Monetary Policy should be able to maintain price stability, the
balance of payments, the promotion of employment and output
growth, and sustainable development because it influences the
country's economic growth.
Government should embark on other measures besides monetary
policy to promote economic growth.
Increase the domestic interest rate to attract foreign capital.
Increase government spending on the productive of the economy to
promote economic growth.

5. Over the period of 2000 until 2010, monetary policy played a role in promoting
economic growth in the South African economy. This study is about a trial of unit
root test to testify stationarity in the time series. Also, the co-integration and
“Error Correction Mechanism” are used to identify the long-term and short-term
dynamics among the variables. The long-term relationships exist among the
variables. The core to this study shows that money supply, repo rate and exchange
rate are insignificant monetary policy instruments that stimulate the growth in
South Africa while the inflation were significant.
Therefore, the monetary policies should be used to create a more favorable
aspects such as in investment climate that attracts both domestic and foreign
investments by promoting and encourage sustainable economic growth. The
government needs to increase their spending on productive sectors of the economy
to support economic growth as monetary policy alone is unable to effectively
boost economic growth.

6. The growth between real and nominal
GDP with Tax growth from the year of
1994 until 2014 in South Africa.

7. In South Africa, the monetary policy is conducted by the South African Reserve Bank (SARB)
and the central bank has the authorization to conduct the monetary policy. The situation of
the current affairs, the impact of monetary policy on the economic growth of a small and
open economy being such as South Africa are being evaluated. Structuralists contend that
changes in money supply (M3) and inflation (CPI) are not significantly related to changes in
economic growth (GDP), while orthodox economists argue that they are.
•Orthodox economists opposed the argument and believe that they can hold the monetary
authorities and control M3 which is in fact they can’t. The opposite effect would be achieved
when monetary authorities pursue an expansionary policy.

8. The ADT test statistic against the McKinnon critical values was used and it was found that
money supply changes and inflation are significantly related to changes in economic
growth, and whereas monetary authorities can control M3 through the repo rate, they
cannot keep it within set targets.

9. The Keynesians propose that “money does not matter”, hence unable to impact on economic
growth. On the other hand, the Monetarists believe that “money matters”, thereby advocating
for the use of monetary policy in influencing economic growth. They argue that there is a
direct link between the monetary sector and the real sector of the economy.

10. The monetarists explained that money supply can inluence economic growth because an
incerease in the real balance can cause disequilibrium in the money market as a result of
excess money supply. Therefore, to correct the disequilibrium consumers will purchase other
asets.
Khabo (2002) evaluated the impact of monetary policy on a small and open economy in the
case of the South Africa for the period 1960-1997. He used M3 to measure monetary policy.
The ordinary least square (OLS) method was employed, as well as the Augmented Dickey
Fuller test to check for stationarity. Results of the study indicate that economic growth is
significantly influenced by money supply.

11. Starr (2005) used the Granger causality test to investigate the relationships between
monetary-policy variables and both output and prices in the post-stabilization period, in four
core CIS countries (Russia, Ukraine, Kazakhstan and Belarus) using quarterly data from 1995
to 2003. Results of the study provide little evidence of real effects of monetary policy in the
four core CIS countries with the notable exception that interest rates have a significant impact
on output in Russia. The findings complement the study of Uhlig (2005) whose findings show
that contractionary monetary policy shocks have no clear effect on real GDP in the United
States.

13. It is about the policy of maintaining the price stability,
maintaining the balance of payments balance, the promotion
of employment and output growth and sustainable
development.

14. To ensure that the amount of money in circulation is at a level
consistent with the real income growth target, the government
uses monetary policy so that non-inflationary growth is always
guaranteed. Monetary policy influences a country's economic
growth. Governments also have to increase their spending in the
productivity sector to help develop the economic growth.

15. In the period of 1981 until 1985, the De Kock Commission (1978)
was appointed to evaluate the monetary policy framework, and
they recommended the use of preannounced monetary target
range for a broad definition of money (M3) in South Africa.
M3 consists of M2 plus large-denomination time deposits at all
commercial banks, term repurchase agreements at commercial
banks and saving and loan associations and institutions only
money market mutual fund balances (Mishkin, 2008).

16. The intention of cash reserves-based system with preannounced
monetary targets system was to have control over the cost of cash
reserves and the reserve bank controlled the discount rate and
according to Casteleign (2003), the short term interest rate became the
main monetary policy instrument during this period because of its
influence on the cost of overnight lending and market interest rate
thereby reducing the demand for credit.
Growth in the money supply and bank credit extension are used as
guidelines for the determination of short-term interest rate. Keynes
declined that economic always at the same level or at the nearest
level to the natural Real GDP, they also declined the assumption of
constant speed, which is proposed by the Classic Theory. This caused
the change on money supply unable to make a difference on the
output.

17. South Africa is already included in the scope of developing
countries. Technology actually exists, but it’s still not
sophisticated in helping the system of government and the
economy of South Africa. But, in 2014, South Africa was
rivaled by Nigeria in the matter of GDP of their country.

18. South Africa’s economy grew by 1,5% in 2014, down from 2,2% in 2013, according to preliminary
estimates of real gross domestic product (GDP) released by Stats SA. Eight of the ten industry
groups experienced some growth during the year, while two industries shrank in size.
The industry that grew the fastest in 2014 was agriculture1, expanding by 5,6%, with
government services coming in second place at 3,0%. Economic activity within the mining and
electricity industries decreased by 1,6% and 0,9% respectively, while manufacturing showed very
little change for the year as a whole.

19. How South Africa economy perform
in 2014

20. The mining industry was interrupted by widespread strikes during the first half of 2014, resulting
in a decline in mining activity in the first quarter (with a decline of -22,8%)3 and second quarter
(with -3,0% decline). This was followed by positive growth during the second half of the year, with
mining expanding by 3,9% in the third quarter and 15,2% in the fourth quarter.
The increased mining activity in the fourth quarter was due to higher production in the mining of
‘other’ metal ores (including platinum) and ‘other’ mining and quarrying (including diamonds).
GDP is widely used to measure the size of an economy and its performance over time. In 2014,
South Africa’s GDP was R3,8 trillion (or R3 800 billion).

21. Other quick facts for the fourth quarter of 2014 are:
• Real GDP increased by 4,1% quarter-on-quarter, seasonally adjusted and annualized.
• Manufacturing increased by 9,5% quarter-on-quarter, seasonally adjusted and annualized.
• The unadjusted real GDP increased by 1,3% year-on-year.
• 1 Agriculture, forestry and fishing.
• 2 Electricity, gas and water.
• 3 % change, quarter-on-quarter, seasonally adjusted and annualized.

23. Monetary policy has the ability to change the current state of economic
condition, yes, it has the ability to change the economical condition. The point
is, we're able to use the monetary policy to change the state of deflation or
inflation that occurred.
The weakness of Monetary policy is, when the policy itself already applied but
still do not give positive feedback for the economical condition, or simply didn’t
affect it, it is the weakness of Monetary Policy.
The potential of Monetary Policy to fix the bad economical condition.
Unresponsive market towards the issued monetary policy, which make it
worse instead of fixing it.

24. South Africa is one of the countries with
abundant natural resources such as gold,
diamonds, ferrochrome, platinum, and
vanadium.
Not only that they have plentiful of natural
resources, there are also several key sectors
that South Africa has manufacturing,
mining, agriculture, communications,
tourism, wholesale and retail trade, finance
and business services, and investment
incentives.

25. •

26. Monetary policies should be
used to create a favorable
investment climate that
attracts both domestic and
foreign investments thereby
promoting a sustainable
economic growth.
The government
should increase their
government spending on the
productive sectors of the
economy so as to promote
economic growth as monetary
policy alone is unable to
effectively spur economic
growth.
An increase in the domestic interest
rate relative to other countries
would tend to attract foreign capital
and cause an appreciation of the
domestic currency (i.e. the carry
trade).
Where the study of the SA prime rate
and PPI inflation is going to be used
to determine the real domestic
interest rate, while the USA prime
rate and the foreign wholesale price
inflation prevailing in our major
trading partner countries has been
used to generate the foreign real
interest rate.

27. For our recommendation on this problem, is that we would pick where
the government could increase their government spending on the
productive sectors of the economy, so as not only to promote the
economic growth but it would be effective for South Africa nations.
Since the monetary policy alone can't effectively spur their economic
growth, which is why the government needs to do their parts.