Ponte Academic Journal Sep 2017, Volume 73, Issue 9 |
IDENTIFYING THE INTERDEPENDENCE BETWEEN SOUTH AFRICA’S MONETARY POLICY AND THE STOCK MARKET Author(s): Brian Muroyiwa ,Abel Ezeoha, Abbyssinia Mushunje J. Ponte - Sep 2017 - Volume 73 - Issue 9 doi: 10.21506/j.ponte.2017.9.16 Abstract: This study estimates the interdependence between South Africa�s monetary policy and stock market performance, utilising structural vector autoregression (SVAR) methodology. The study finds that a stock price shock which decrease stock prices by 100 basis points leads to 5 basis points decrease in interbank rate. A monetary policy shock that increases the interbank rate by 1 percent leads to decrease in real stock prices by 1 percent. This result for South Africa is similar to the result of other earlier studies which concluded that there was a high interdependence between interest rate setting and stock prices. However the magnitude of the relationship is relatively lower for South Africa compared to that of countries such as United States of America (USA). Nevertheless the SARB may have to consider watching movements in stock prices so that booms in stock markets do not defeat central bank monetary policy thrusts. The study concludes that stock price market is an essential source of information for monetary policy in South Africa
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