South Africa’s 2003–2013 credit boom and bust: Lessons for macroprudential policy

Hylton Hollander and Roy Havemann

Economic History of Developing Regions, 2021, vol. 36, issue 2, 339-365

Abstract: We evaluate South African financial stability policy from 2003 to 2013 – the country’s most significant credit boom and bust cycle. This cycle overlapped with both rising bank capital adequacy ratios and the global financial crisis of 2007/8. We use a dynamic stochastic general equilibrium model to identify South African Reserve Bank (SARB) interventions and run counterfactual policy scenarios. We document two instances of policy inaction. Our counterfactual scenarios suggest that, with the benefit of hindsight, the SARB took the correct steps to raise capital requirements during the credit boom, but could have persisted with raising capital requirements for longer (past 2004), and could have adopted a looser policy stance after the global financial crisis to mitigate the credit bust. Our findings reaffirm the importance of counter-cyclical action, the usefulness of bank capital as a buffer against unexpected shocks to build financial sector resilience, and the need for independent but close coordination between monetary and macroprudential policy. In addition, because of structural differences between household and firm credit, the SARB should consider buttressing the uniform countercyclical capital buffer with sector-specific capital requirements.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/20780389.2021.1938532 (text/html)
Access to full text is restricted to subscribers.

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:taf:rehdxx:v:36:y:2021:i:2:p:339-365

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rehd20

DOI: 10.1080/20780389.2021.1938532

Access Statistics for this article

Economic History of Developing Regions is currently edited by Alex Klein and Alfonso Herranz-Loncan

More articles in Economic History of Developing Regions from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().