A computable general equilibrium model for banking sector risk assessment in South Africa

Conrad F. J. Beyers, Allan Freitas, Kojo A. Essel-Mensah, Reyno Seymore () and Dimitrios Tsomocos
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Conrad F. J. Beyers: University of Pretoria
Allan Freitas: University of Pretoria
Kojo A. Essel-Mensah: University of Pretoria

Annals of Finance, 2020, vol. 16, issue 2, No 2, 195-218

Abstract: Abstract In this article a banking sector Computable general equilibrium (CGE) model for South Africa is developed. The model is used to estimate the potential effect of regulatory policy on the economy and as a risk assessment tool to assess how changes in regulation affect the economy. The model provides a methodology for regulators of the banking sector and policy makers in South Africa to deal with risk assessment and future regulatory planning. The CGE model allows interactions amongst various entities of the economy so that policy makers could detect the risks in the banking sector. The CGE model used in this paper performed well as a risk assessment tool for the South African banking sector. The results of the various shocks from the model are consistent with the results obtained from similar shocks done in the UK. We establish that default penalty has a higher effect on the banks’ profits and the interest rates than capital requirement infringement penalty. Our results also suggest that interest rate targeting has more controlled effects than monetary base targeting since pecuniary externalities are reduced.

Keywords: Computable general equilibrium; Banking regulation; Systemic risk (search for similar items in EconPapers)
JEL-codes: D52 D58 E52 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10436-020-00362-4

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