Can monetary and fiscal policy account for South Africa’s stagnation?

Abstract

This paper examines the interaction between macroeconomic variables and the fiscal and monetary policy mix between 2012 and 2019, a period characterized by increased public debt and risk premium and low economic growth. We use a large Bayesian vector autoregressive model and find that monetary and fiscal policy fails to account for the observed lower real gross domestic product between 2012 and 2019. Based on their historical relationship, the results indicate that we should have observed much higher growth, especially during the 2015 to 2019 period. In addition, we find little evidence that the low growth during the period can be rationalized by the much-criticized anti-growth monetary policy.