Josine, Uwilingiye2008-02-112008-02-112007-06Josine, U & Gupta, R 2007, 'Temporal causality between budget deficit and interest rate : the case of South Africa', University of Pretoria, Department of Economics, Working paper series, no. 2007-08. [http://web.up.ac.za/default.asp?ipkCategoryID=736&sub=1&parentid=677&subid=729&ipklookid=3]http://hdl.handle.net/2263/4403This paper investigates the direction of temporal causality between budget deficit and interest rate in South Africa using quarterly data for the period of 1961:02 to 2005:04, and also for annual data covering 1961 to 2005. Based on a multivariate Vector Error Correction Model (VECM), estimated using Johansen’s (1991, 1995) Maximum Likelihood Approach, we find that budget deficit Granger causes interest rate in the quarterly data. However, for the annual data, no causal relationship could be detected between the budget deficit and the Treasury bill rate. The two variables of interest are, however, positively cointegrated for both data frequency. Interestingly though, exactly the same results were obtained from simple Granger causality tests based on a bivariate framework, comprising merely of budget deficit and interest rate.293255 bytesapplication/pdfenUniversity of Pretoria, Department of EconomicsCointegration testGranger causality testVector autoregressive (VAR) modelVector error correction model (VECM)Budget deficits -- South AfricaInterest rates -- South AfricaWorking Paper