Dynamics of Macroeconomic Uncertainty on Economic Growth in the Presence of Fiscal Consolidation in South Africa from 1994 to 2022
Eugene Msizi Buthelezi ()
Additional contact information
Eugene Msizi Buthelezi: Department of Economics, University of Free State, Bloemfontein 9301, South Africa
Economies, 2023, vol. 11, issue 4, 1-24
Abstract:
This paper investigates the effects of macroeconomic uncertainty on economic growth in the presence of fiscal consolidation in South Africa. Markov-switching dynamic regression (MSDR) and time-varying parameter vector autoregression (TVP-VAR) were performed using time series data from 1994 to 2022. Less attention has been given directly to the investigation of macroeconomic uncertainty in different regimes of economic growth in South Africa. Three states are found for economic growth, with mean growth rates of negative 6.29% and positive 3.90% and 1.47%, respectively. Macroeconomic uncertainty was found to have a negative impact of 6.72%, 4.38%, and 3.08% in states 1 to 3, respectively. Fiscal consolidation provided an accommodative policy, as it reduced the negative impact of macroeconomic uncertainty by 3.17%, 1.80%, and 0.92% in states 1 to 3, respectively. However, fiscal consolidation does not completely reduce the negative impact of macroeconomic uncertainty. The transition probabilities of economic growth moving and returning to the same states are 29.46%, 34.07%, and 58.02%, in each state, respectively. The time-varying impulse response functions showed that the shock of macroeconomic uncertainty harms economic growth. Nevertheless, the multiplier effect is not large; however, the economy operates below equilibrium and does not restore equilibrium after the effect of macroeconomic uncertainty. This reflects that it takes time for macroeconomic uncertainty to filter out of the South African economy. It is recommended that fiscal consolidation be considered as an accommodative fiscal policy to reduce macroeconomic uncertainty but not as a main policy for economic growth.
Keywords: fiscal consolidation; macroeconomic uncertainty; economic growth; cyclical adjusted primary balance (CAPB); Markov-switching dynamic regression (MSDR); time-varying vector autoregressive (TA-VAR) (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://www.mdpi.com/2227-7099/11/4/119/pdf (application/pdf)
https://www.mdpi.com/2227-7099/11/4/119/ (text/html)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:gam:jecomi:v:11:y:2023:i:4:p:119-:d:1124225
Access Statistics for this article
Economies is currently edited by Ms. Hongyan Zhang
More articles in Economies from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().