Browsing by Author "Simson, Richard Andrew."

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An analysis of money demand stability in Rwanda.
(2005) Sayinzoga, Aussi.; Simson, Richard Andrew.
A stable money demand function and exogeneity of prices is at the core of planning and implementing a monetary policy of monetary targets. This thesis examines both the stability of M2 money demand and price exogeneity in Rwanda for the years 1980 to 2000. We estimate and test the elasticities of the determinants of Rwandan money demand function. We include in this demand function those variables which economic theory indicates must be part of any empirical investigation of money demand. All coefficients had the signs as required by economic theory. We estimate the money demand function for Rwanda using cointegration analysis and an error correction mechanism. The results show real income, prices and M2 to be cointegrated. We employ three tests to show that the estimated demand function for Rwanda is stable. We then test the second requirement for coherence in monetary aggregate targeting that money determines prices. The results show that prices are exogenous to money. But before we can definitely conclude that an inflation targeting regime is feasible from monetary policy perspective, we point out that future research on this important topic must account for exchange rate movements, measure permanent income and specify interest rate changes correctly.
An analysis of recent global economic development and GDP growth using Stein's Paradox, and South Africa's monetary and fiscal policy response.
(2013) Pillai, Sharvania.; Mahadea, Darma.; Simson, Richard Andrew.
The economic crisis of 2007 has had debilitating effects on the global economy, affecting GDP growth, unemployment and trade to name a few. In response to these economic effects, numerous policy interventions were implemented. There are various existing time-series methods available to determine better estimates of GDP growth rates, one of which is Stein’s Paradox which uses observed averages to estimate unobservable quantities which are closer to the true unknown GDP growth rates or theta (θ) in order to determine better growth rates post the economic crisis. The resulting James-Stein estimator (z) is said to be better than the arithmetic average, and thus a closer approximation to the true GDP growth rates which are unobservable. This dissertation analyses the effects of the 2008 financial crisis on the global economy, with specific reference to South Africa and America, and their corresponding policy interventions to determine the growth trajectory after the crisis. The main objective is to determine if better estimates of GDP growth can be calculated using Stein’s Paradox, across a sample of 30 countries, using quarterly GDP growth for the period 2005 to 2008. Annual GDP data was also used for the period 2009-2011, and future GDP growth rates were forecasted for the period 2012 to 2016. To reinforce the Stein’s Paradox, the Monte Carlo study is undertaken. It is used to determine how the James-Stein estimates perform under different conditions using a common c or unique c, and to determine which condition will provide more accurate GDP growth rates (Muthen. 2002). Analysis of time series data across a sample of 30 countries using Stein’s Paradox provided better estimates of GDP growth rates than the individual average growth rates for each country based on the lower standard deviation and total squared error of estimation achieved. This shows that the results are closer to theta and have a smaller amount of error, particularly when a common c was used. The Monte Carlo results indicate that better GDP growth rates are achieved when using a common c instead of a unique c given that a smaller standard deviation and variance is derived. Therefore the Monte Carlo study aims to reinforce or verify Stein’s Paradox. The study also indicates that emerging and developing countries seem to be the driving forces of growth in the future, while developed countries seem to be lagging behind.
The analytical and empirical appraisal of the Ricardian equivalence with reference to South Africa.
(1998) Newport-Gwilt, Victoria Joan.; Simson, Richard Andrew.
The Government of National Unity, on coming into power in April, 1994, has endorsed the reconstruction and development programme (RDP) and its broad agenda for the rapid removal of the problems and gross inequality evident in all aspects of the South African society. Many economists argue that the sustain ability of the RDP, will depend crucially on the maintenance of fiscal discipline and the progressive reduction of the overall fiscal deficit. As excessive fiscal deficits are often associated with higher inflation, higher real interest rates, balance of payments disequilibrium and lower economic growth, thereby putting the RDP at jeopardy. The view based on the Ricardian Equivalence approach however, takes the position that neither deficits nor the way they are financed, is as critical to economic policy and the future prosperity of an economy, as is generally believed. The Ricardian view consequently, argues that government need not necessarily embark on deficit reduction programmes as advocated by the so called traditional view. The study investigates the validity of the Ricardian view, both on the empirical and theoretical side, with special reference to the South African economy. The specific question that this study attempts to address is whether economic agents behave in a Ricardian manner in the South African economy. Our results (based on the replication of the Dalamagas (1994) study) could be very consequential for South African policy makers, as they suggest that the Ricardian Equivalence proposition is valid and therefore, government could on purely theoretical grounds shift its focus away from the debt situation, and concentrate on the policies aimed to correct the inequalities (in wealth, distribution of public goods, employment opportunities) created by the Apartheid era. Whether government should do so in reality however is debateable due to the other considerations that government need to take account of when implementing actual macroeconomic policy.
Capital budgeting techniques : principle versus practice in South Africa.
(2000) Napier, Jason.; Simson, Richard Andrew.
No abstract available.
Effectiveness of monetary policy and money demand stability in Rwanda : a cointegration analysis.
(2010) Adelit, Nsabimana.; Simson, Richard Andrew.
In 2007, the government of Rwanda launched a medium-term programme of four years, as stated in its Economic Development and Poverty Reduction Strategy (EDPRS). A part of this programme is a prudent monetary policy which is one of the responsibilities of the National Bank of Rwanda (NBR), especially via its role of controlling liquidity in the national economy for ensuring macroeconomic stability. The National Bank of Rwanda adjusts base money to ensure that the level of the monetary aggregate M2 is consistent with price stability. To effectively implement this monetary policy, two conditions are necessarily required: (i) a stable demand function for money; (ii) a stable long-run relationship between the money stock and the price level. Using a cointegration analysis we investigated the effectiveness of this policy through examining whether these two conditions are fulfilled for the years 1996:Q1 to 2008:Q3. This study confirmed the stability of the money demand function and found that the money stock in the Rwandan economy and prices trend together in the long-run. Thus, targeting the monetary aggregate M2 is a good indicator of the price level. Moreover, we found that at a five point six per cent (5.6%) significance level, the Rwandan money market needs 3.5 quarters to eliminate a half disequilibrium discrepancy in the money demand model. At a six point five per cent (6.5%) significance level, the Rwandan money market needs 4.5 quarters to eliminate a half disequilibrium discrepancy in the money supply model. Monetary policy implemented by the National Bank of Rwanda remains effective as it is still possible to achieve the overall objective of price stability through targeting the monetary aggregate M2.
An estimation of the demand for real money in South Africa, with the application of cointegration and error correction modelling over the period 1965:02 to 1996:04.
(1998) Reinhardt, Annabel Marie.; Simson, Richard Andrew.
No abstract available.
Intra-industry trade in South Africa.
(1987) Simson, Richard Andrew.
Intra-industry trade is a recent development in international trade theory. This study attempts, for the first time, to measure the extent of intra-industry trade in South Africa. It is found that approximately a one-third of total South African trade is of the intra-industry type. The first chapter places theoretical developments accounting for intra-industry trade in relation to the conventional models of trade. This chapter is followed by a detailed coverage of seven models that allow for intra-industry trade, in order to ascertain the major determinants of intra-industry trade. A third chapter examines the "existence problem" and discusses measures of intra-industry trade and a fourth chapter estimates the level of intra-industry trade in South Africa. Statistical analyses of the major determinants of intra-industry trade were generally successful, except for the poor performance of product differentiation proxies. A final chapter concerns the commercial policy and welfare aspects of intra-industry trade, concluding that there are gains to be had, from social and political changes within South Africa, if such changes lead to greater economic integration and cooperation in the Southern Africa region.
An investigation of inflationary expectations, money growth, and the vanishing liquidity effect of money on the interest rate in South Africa : analysis and policy implication.
(2001) Soopal, D. C.; Simson, Richard Andrew.
This thesis measures the extent to which the interest rate falls after an increase in the money supply. Even though the South African Reserve Bank has as a commitment, a goal for the inflation rate to vary between a prescribed band, it still needs to be able to use active monetary policy if economic conditions require intervention. To this end it is of interest to measure the number of quarters for which interest rates remain low after the liquidity of the macro-economy improves. In the monetary literature (for example Melvin (1983)) there are methods that have been used to measure the duration of the decline in the interest rate. These models have not to our knowledge been tested using South African data. We find evidence that the monetary authorities can induce falling interest rates for approximately one quarter using appropriate monetary policy. This result was subjected to testing under alternative assumptions concerning the structure of the error term and found to be robust. This thesis argues for the first time, that there may not be a set pattern to the time path of the interest rate, and inflationary expectations may cause the interest rate to rise, however, this rise is not confined to one uniform adjustment over time, but may occur in separate discrete adjustments. This theoretical innovation and the possibility of an identification problem suggested we estimate another more general model of interest rate determination The second model we estimate is that of Mehra (1985). After a careful analysis of the data to ensure that there are no major statistical problems with the South African data, we find that inflationary expectations result in a higher interest rate especially in times of higher expected inflation. Thus, one benefit of the Reserve Bank's current policy that aims for a band between which the rate of inflation (appropriately defined) must fall, is an improved operation of the transmission mechanism. Therefore, if intervention is required, say, if the economy suffers a severe supply shock, then monetary policy can be effective.
Political risk and capital flight in South Africa.
(2002) Shimwela, Maka Nikubuka.; Simson, Richard Andrew.
Developing countries have low levels of capital. They are usually net borrowers, supplementing their low domestic savings with external finance. During the 1970s and 1980s many developing countries borrowed from international financial institutions on a large scale. Surprisingly, private citizens of these developing countries were investing in foreign assets at an increasing rate. This observation raised a great deal of interest among academics, policy-makers and the general public concerning capital flight from developing countries . Some of the effects of capital flight on the domestic economy of a developing country are as follows : Firstly, capital flight causes a reduction in available resources to finance domestic investment. This leads to a decline in the rate of capital formation and adversely affects the developing country's economic growth rate. Secondly, capital flight reduces the government's ability to tax all the income of its residents because the government experiences difficulty in taxing wealth held abroad as well as income that is generated from that wealth. Capital flight thus reduces government revenues and the ability to service external debt. Thirdly, as the government revenues fall with the erosion of a tax base there is an increased need to borrow from international financial institutions thereby increasing the foreign debt burden. Capital flight conforms to the portfolio allocation theory , which states that capital flows are determined by rates of return and risk. Capital flows respond positively to higher rates of return and negatively to risk. The present study investigates the effect of political risk on the magnitude of capital flight in South Africa over the period 1960-1995. South Africa is a good test case because the country experienced high political risk and capital flight for many of the years between 1960 and 1995. We replicate the Fedderke and Liu's study (1999) by recollecting the data from original sources. After conducting tests for cointegration we estimate the impact of political risk measured by a political instability index on capital flight. We find support for the hypothesis that higher instability results in greater capital flight. This is the result we are able to replicate thus supporting Fedderke and Liu. We also use our results to show how capital flight can depreciate the exchange rate. Finally we point to. some possible policy implications.
Stability of money demand and monetary policy in a small developing economy - Uganda : an econometric investigation into some basic issues.
(2004) Kaweesa, Andrew Stephen.; Simson, Richard Andrew.
A stable money demand function is the essence of planning and implementing monetary policy. This thesis explores the stability of the M2 money demand function in Uganda for the period 1980-2002. We estimate and interpret the elasticities of the determinants of the money demand function. After analyzing the dynamics of money demand determinants, the variables crucial to money demand estimation in this thesis were established as being: real income, the nominal rate of interest on Treasury bills, the actual rate of inflation and the change in the exchange rate. All variables had the correct signs as required by economic theory, where real income was found to be positive whilst the nominal rates of interest on Treasury bills, the actual rate of inflation and the change in the exchange rate all have negative signs. We estimate the money demand function for Uganda, using cointegration analysis and an error correction mechanism (ECM) on quarterly data over the sample period 1980-2002. The results from the Johansen and Juselius (1990) cointegration test suggest that real income, the nominal interest rates on Treasury bills and real M2, are cointegrated. The results of the error correction mechanism suggest that in spite of major policy reforms in the years 1987 and 1993 such as the introduction of new financial instruments, and liberalization of the financial system, the estimated money demand function for Uganda is stable only in one time period 1994-2002 that is after major policy reforms. The results of the study show that M2 is a viable monetary policy tool that could be used as an intermediate target to stimulate economic activity in Uganda. We also conclude that the feasible approach for conducting monetary policy in Uganda is to adopt an inflationary targeting regime. However, monetary policy might continue to benefit from other economic indicators by monitoring the impacts of changes in interest rates and the change in exchange rates on real money demand in Uganda.