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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Identifying aggregate supply and demand shocks in South Africa
Authors:du Plessis, Stan
Smit, BenISNI
Sturzenegger, FedericoISNI
Periodical:Journal of African Economies
Geographic term:South Africa
Subjects:business cycles
gross national product
economic development
External link:https://jae.oxfordjournals.org/content/17/5/765.full.pdf
Abstract:This paper offers a decomposition of output fluctuations into aggregate demand and aggregate supply shocks in South Africa for the period since the early 1960s. Theoretically motivated long-run restrictions are used to identify these shocks in a three-variable vector-autoregressive (VAR) model. The aggregate demand shocks, assumed to be transitory in nature, provide a new measure of the business cycle, whereas the cumulative aggregate supply shocks, assumed to have a long-lasting effect on output, provide a novel estimate of potential output. The research contributes to the literature on quantifying measures of both potential GDP and, by implication, the business cycle in South Africa. The new measure of potential GDP suggests that the South African economy suffered a 30 percent relative decline in potential GDP between the mid-1970s and mid-1990s as the internal and external costs of apartheid rose at a time of disruption in the world economy. Of this decline, 10 percent observed between 1989 and 1994 cannot be associated to external shocks such as changes in international financial market scenarios or in South Africa's terms of trade, pointing to domestic dynamics. The analysis also suggests that potential GDP is growing by about 3 to 4.6 percent per year with a likely value of around 3.5 percent. App., bibliogr., notes, ref., sum. [ASC Leiden abstract]