Template-Type: ReDIF-Paper 1.0
Author-Name: Miss Nombulelo Gumata
Author-Name: Mr Nir Klein
Author-Name: Mr Eliphas Ndou
Title: A Financial Conditions Index for South Africa
Abstract: The main purpose of this paper is to construct a financial conditions index (FCI) forSouth Africa. The analysis extracts the index by applying two alternative approaches(principal component analysis and Kalman filter), which identify an unobservablecommon factor from a group of external and domestic financial indicators. Thealternative estimated FCIs, which share a similar trajectory over time, seem to havepowerful predictive information for the near-term gross domestic product (GDP)growth (up to four quarters), and they outperform the South African Reserve Banks(SARB) leading indicator, as well as individual financial variables. Their recentdynamics suggest that following a strong recovery in late 2009 and 2010, reflectingin part domestic factors such as systematic reductions in the policy rate, the reboundin real economic activity and a benign inflationary environment, the financialconditions have deteriorated in recent months, though not as sharply as in end-2008. Given their relatively high predictive power regarding GDP growth, a furtherdeterioration may imply that economic activity is likely to slow in the period ahead.
Creation-Date: 2012-08-30
File-URL: http://www.resbank.co.za/content/dam/sarb/publications/working-papers/2012/5119/WP1205.pdf
File-Format: application/pdf
File-Function: Revision
Number: 5119
Handle: RePEc:rbz:wpaper:5119