Does Economic Policy Uncertainty Impact Real Money Demand in South Africa?

Nombulelo Gumata () and Eliphas Ndou
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Nombulelo Gumata: South African Reserve Bank

Chapter Chapter 31 in Achieving Price, Financial and Macro-Economic Stability in South Africa, 2021, pp 465-472 from Springer

Abstract: Abstract Does economic policy uncertainty impact real money demand in South Africa? Evidence reveals that elevated economic policy uncertainty lowers real money demand and that the credit conditions channel and inflation regimes matter for the transmission of such shocks. The results show that inflation declines due to positive economic policy uncertainty shocks when inflation is below 6 per cent and especially when it is below 4.5 per cent. Inflation also declines when considering the effects of the nominal effective exchange rate depreciation shocks, suggesting that the exchange rate pass-through to inflation is weaker in low-inflation regimes. In addition, positive policy uncertainty shocks tighten credit conditions and lower GDP growth, and these effects assist in attaining price stability especially when inflation is below 6 per cent. Hence, inflation regimes matter for the transmission of economic policy uncertainty shocks to money demand.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-66340-7_31

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DOI: 10.1007/978-3-030-66340-7_31

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