Stock price dynamics and the business cycle in an estimated DSGE model for South Africa

Michael Paetz and Rangan Gupta

Journal of International Financial Markets, Institutions and Money, 2016, vol. 44, issue C, 166-182

Abstract: This paper develops and estimates an open economy dynamic stochastic general equilibrium model of South Africa. We devote special attention to the impact of stock price wealth effects on output and the interest rate. For this reason we adopt a perpetual youth approach, which allows for a limited decision horizon. We estimate the model using Bayesian techniques and find that (i) about 9% of the volatility in production can be explained by financial shocks, and (ii) the SARB does not and should not react on stock price disturbances. Moreover, stock prices seem to be unaffected by shocks from the real economy.

Keywords: DSGE models; Wealth effects; Open economy; South Africa (search for similar items in EconPapers)
JEL-codes: D91 E21 E44 F41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Stock Price Dynamics and the Business Cycle in an Estimated DSGE Model for South Africa (2014)
Working Paper: Stock Price Dynamics and the Business Cycle in an Estimated DSGE Model for South Africa (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:44:y:2016:i:c:p:166-182

DOI: 10.1016/j.intfin.2016.05.004

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