What Are the Macroeconomic Effects of a Positive Interest Rate-GDP Growth Differential Shock?

Eliphas Ndou and Nombulelo Gumata
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Nombulelo Gumata: Eldoreigne X3

Chapter Chapter 16 in Fiscal Policy Shocks and Macroeconomic Growth in South Africa, 2023, pp 201-211 from Springer

Abstract: Abstract This chapter explored the macroeconomic effects of positive shocks to the interest rate-GDP growth differential. It further assessed whether positive and negative interest rate-GDP growth differential regimes exert different macroeconomic effects. We find that government debt and ten-year yields increase in response to positive shocks to the interest rate-GDP growth differential. The rand per US dollar (R/US$) exchange rate depreciates and inflation increases. There are asymmetries that are induced by the low and high-interest rate-GDP growth differential. The difference between the average interest rate governments pay on their debt and the economy’s nominal growth rate is a key variable for debt dynamics and sovereign sustainability analysis. Thus, policymakers should adopt policies that enhance fiscal sustainability.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-37755-6_16

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DOI: 10.1007/978-3-031-37755-6_16

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