An empirical capital market rate function for an emerging market economy in international financial crisis

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Authors

Harmse, Chris
Du Toit, Charlotte Barbara

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Faculty of Economic and Management Sciences, University of Pretoria

Abstract

After the first democratic election in South Africa in April 1994, South Africa's financial markets became more exposed and vulnerable to international developments, vide the financial crisis of 1998. This vulnerability raises some important questions. Has its greater degree of openness led to a structural change in the South African economy? Are long-term interest rates now primarily determined by international sentiment regardless of domestic economic and political conditions, during periods of international financial market volatility? And, in the event, what is the consequent effect on monetary policy in South Africa? The aim of this paper is to investigate these questions by using a cointegration approach to estimate a long-run interest or bond rate function for South Africa.

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Keywords

Structural change, South Africa (SA), Modelling, International financial crises, International developments, Interest rates, Financial markets, Empirical models, Emerging market economies, Dynamic simulation, Democratic elections, Capital markets, Capital market rate functions, Bond rate functions, Finance, Economics

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Citation

Harmse, C & Du Toit, C 1999, 'An empirical capital market rate function for an emerging market economy in international financial crisis', South African Journal of Economic and Management Sciences, vol. 2, no. 3, pp. 335-357. [http://www.journals.co.za/ej/ejour_ecoman.html]