Naser Yenus Nuru and Hayelom Yrgaw Gereziher
The main purpose of this study is to investigate the short-run and long-run asymmetric effects of fiscal policy, namely government spending on economic growth over the sample…
Abstract
Purpose
The main purpose of this study is to investigate the short-run and long-run asymmetric effects of fiscal policy, namely government spending on economic growth over the sample period 2004Q2 up to 2018Q1 for the South African economy.
Design/methodology/approach
Nonlinear autoregressive distributive lag model is used to examine the short-run and long-run asymmetric effects of government spending on economic growth.
Findings
The results exhibit the negative change effect of government spending is found to be greater than the positive change effect of government spending on economic growth. Real effective exchange rate is found to have a positive and significant effect on economic growth both in the short run and long run. Whereas, inflation rate affects economic growth negatively and significantly in the short run and long run.
Originality/value
Previous empirical studies on the effect of fiscal policy on growth, at least for South Africa, consider only the asymmetric short-run effect while this paper extends the literature by incorporating asymmetries into the long-run effect. It provides a detailed analysis to the recent controversies on the effects of fiscal policy on growth.
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Hiluf Techane Gidey and Naser Yenus Nuru
Government spending has inconclusive effect on real exchange rate. From the very beginning neoclassical economists argued that a rise in government spending brings depreciation in…
Abstract
Purpose
Government spending has inconclusive effect on real exchange rate. From the very beginning neoclassical economists argued that a rise in government spending brings depreciation in real exchange rate while neo-Keynesians claimed that government spending appreciates real exchange rate. Hence, the main purpose of this paper is to examine the effect of government spending shock and its components' shocks, namely government consumption and government investment on real exchange rate over the period 2001Q1–2016Q1 for Ethiopia.
Design/methodology/approach
To examine the effects of government spending shocks on real exchange rate, Jordà's (2005) local projection method is employed in this study. The exogenous shocks, however, are identified recursively in a vector autoregressive model.
Findings
The impulse responses show that government spending shock leads to a statistically significant appreciation of real exchange rate in Ethiopia. This evidence supports the neo-Keynesian school of thought who predicts an appreciation of real exchange rate from a rise in government spending. While government investment shock depreciates real exchange rate on impact insignificantly, government consumption shock appreciates real exchange rate in this small open economy.
Originality/value
This research contributes to the scarce literature on the effect of fiscal policy shock on real exchange rate in small open economies like Ethiopia.
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Naser Yenus Nuru and Mola Gebremeskel Zeratsion
The main aim of this study is to examine the effect of government spending and its components' shocks on the distribution of income between labour and capital in South Africa for…
Abstract
Purpose
The main aim of this study is to examine the effect of government spending and its components' shocks on the distribution of income between labour and capital in South Africa for the period between 1994Q2 and 2019Q3.
Design/methodology/approach
The effects of government spending shocks on income distribution are analysed using Jordà's (2005) local projection method. The shocks, however, are identified by applying short-run contemporaneous restrictions in a vector autoregressive model based on Cholesky identification scheme.
Findings
The results indicate that government spending shock has a positive and significant effect on labour share after the first quarter. This means that expansionary government spending has a paramount role in reducing income inequality in the economy. Both government investment and government consumption shocks have also contributed to a reduction in income inequality, though the magnitude effect is smaller for government consumption.
Originality/value
Research findings on the effects of government spending shock on income inequality are still inconclusive. Therefore, this research examines the effect of total government spending shock along with its components on labour income share for the South African economy.
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The main purpose of this study is to see the macroeconomic effects of monetary and fiscal policy shocks in South Africa.
Abstract
Purpose
The main purpose of this study is to see the macroeconomic effects of monetary and fiscal policy shocks in South Africa.
Design/methodology/approach
The joint effects of monetary and fiscal policy are analyzed by applying short-run contemporaneous restrictions for the identification of shocks in an SVAR in order to derive impulse response functions. Hence, a general AB model of (Amisano and Giannini, 1997) identification scheme, which is not recursive, is employed in this study.
Findings
The author shows that monetary tightening leads to a fall in real economic activity and depreciates the exchange rate. And in regard to the fiscal policy, the author calculates an initial government spending multiplier of 0.20, which later peaks at 0.40. The tax multiplier is almost 0 on impact and statistically insignificant. However, the author finds evidence supporting the existence of accommodative stance between monetary policy and fiscal policy, which is important for economic and political decision-making.
Originality/value
Empirical studies that deal with the joint effects of monetary and fiscal policy for South Africa through the SVAR framework are quite limited. This paper, therefore, contributes to the empirical literature on the effects of monetary and fiscal policy in a small open economy like South Africa.
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Naser Yenus Nuru and Hayelom Yrgaw Gereziher
The main purpose of this study is to investigate the symmetric and asymmetric effects of exchange rate uncertainty on employment in South Africa’s manufacturing sector over the…
Abstract
Purpose
The main purpose of this study is to investigate the symmetric and asymmetric effects of exchange rate uncertainty on employment in South Africa’s manufacturing sector over the period 1985Q1–2019Q2.
Design/methodology/approach
Jorda’s (2005) local projection method is employed and following Koop et al. (1996); generalized impulse response functions are generated to see the effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector.
Findings
The results show that exchange rate uncertainty affects negatively and significantly employment in South Africa’s manufacturing sector. Employment also responds negatively and significantly to export shock. Inflation and output shocks, however, positively and significantly affect employment on impact. Asymmetric responses of employment to exchange rate uncertainty are also found in this study. While high exchange rate uncertainty leads to a reduction in employment, low exchange rate uncertainty brings an increase in employment in South Africa’s manufacturing sector.
Originality/value
This research adds to the scarce empirical literature on the effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector by incorporating mainly non-linearities into the model.
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Naser Yenus Nuru and Habtamu Kefelegn
The purpose of this paper is to investigate the effects of unanticipated monetary policy innovations on output and price for Ethiopia from 1991:Q1 to 2016:Q1.
Abstract
Purpose
The purpose of this paper is to investigate the effects of unanticipated monetary policy innovations on output and price for Ethiopia from 1991:Q1 to 2016:Q1.
Design/methodology/approach
Short run and long run identification schemes on structural vector autoregressive model are employed in this study.
Findings
The impulse response function results generated show that while a positive shock in interest rate causes a reduction in output and price puzzle, a positive shock to broad money supply has a positive and significant effect on output and price. A positive shock in real effective exchange rate has also an expansionary, though insignificant, effect on impact on both output and price. These results are especially true for the short run identification scheme. As to the results from the variance decomposition, the study shows that the highest variation in output and price is caused by broad money supply shock in the short run.
Originality/value
It adds to the scarce empirical literature on the effects of monetary policy innovations on the Ethiopian economy.
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Naser Yenus Nuru and Hayelom Yrgaw Gereziher
The main purpose of this study is to examine the effect of commodity price shock on the Ethiopian economy for the sample period of 1991 Q1–2016 Q1.
Abstract
Purpose
The main purpose of this study is to examine the effect of commodity price shock on the Ethiopian economy for the sample period of 1991 Q1–2016 Q1.
Design/methodology/approach
The effect of commodity price shock is analyzed using Jorda's (2005) local projection method. The shock is, however, identified by applying short-run contemporaneous restrictions in a vector autoregressive model based on Cholesky decomposition.
Findings
The results signify that output is positively affected by the shock to the commodity price. In addition, domestic consumer price responds positively and significantly to world commodity price shock after the first quarter. The commodity price shock has also a positive effect, on impact, on money supply. Foreign exchange reserve increases significantly from the fourth quarter onwards and real effective exchange rate appreciates on impact, though insignificantly, in response to the increase in commodity price.
Originality/value
This paper adds to the limited available literature on the effect of commodity price shock for developing countries in general and the Ethiopian economy in particular.
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Hayelom Yrgaw Gereziher and Naser Yenus Nuru
The purpose of this paper is to estimate the size of government spending components’ multipliers for the Ethiopian economy over the sample period of 2001Q1 up to 2017Q4.
Abstract
Purpose
The purpose of this paper is to estimate the size of government spending components’ multipliers for the Ethiopian economy over the sample period of 2001Q1 up to 2017Q4.
Design/methodology/approach
The effects of government spending are analyzed by applying short-run contemporaneous restrictions for the identification of shocks in an SVAR in order to estimate multipliers for the small open economy. Accordingly, recursive identification scheme is used in this study.
Findings
From the impulse response functions, the authors found that aggregate government spending is less effective in stimulating the economy for the study period as evidenced by almost zero multipliers. This can be due to many structural and conjunctural factors that tend to lower the multiplier effects. At a disaggregate level, real GDP responds negatively to capital spending while its effect on recurrent spending is positive and insignificant on impact. The variation to real GDP is best explained by the variation in capital spending as compared to recurrent spending.
Originality/value
Though almost none in number, little research has been conducted in Ethiopia related to the effect of government spending shock on output. But this research deviates from the previous study by introducing a new methodology which is SVAR with cholesky decomposition. The previous study, however, used Bayesian VAR. Besides to that, using cholesky identification scheme, government spending is decomposed in to recurrent and capital spending to see the effect of government spending components on output and government spending multipliers are also computed both at an aggregate and disaggregate level.
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Hayelom Yrgaw Gereziher and Naser Yenus Nuru
The main purpose of this study is to investigate the determinants of foreign exchange reserve accumulation in a foreign exchange constrained economy, namely Ethiopia, over the…
Abstract
Purpose
The main purpose of this study is to investigate the determinants of foreign exchange reserve accumulation in a foreign exchange constrained economy, namely Ethiopia, over the period of 1981 up to 2017.
Design/methodology/approach
In this study, autoregressive distributed lag (ARDL) model is used. Besides, standard unit-root tests such as augmented Dickey Fuller (ADF) and Phillips–Perron (PP) tests are employed to check for the stationarity of the series.
Findings
According to the results of unit-root tests, our variables are found to be a mixture of I(0) and I(1), and none of our series is I(2). The results of our ARDL model indicates, in the short run, foreign exchange reserve accumulation of Ethiopia is negatively and significantly affected by inflation rate and exchange rate. But, in the long run, inflation rate affects foreign exchange reserve positively and significantly. Additionally, in the long run, external debt affects foreign exchange reserve positively. Similar to its effect in the short run, exchange rate also affects foreign exchange reserve negatively in the long run.
Originality/value
This paper has its originality as it contributes in reasoning out the factors determining, both in the short-run and long-run, foreign exchange deficiency in any developing country with foreign exchange deficiency, taking Ethiopian economy as a case study, and fills the scarce literature on the determinants of foreign exchange reserve accumulation in a developing country.
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The purpose of this paper is to show the asymmetric effects of government spending shocks for South Africa over the period 1960Q1–2014Q2.
Abstract
Purpose
The purpose of this paper is to show the asymmetric effects of government spending shocks for South Africa over the period 1960Q1–2014Q2.
Design/methodology/approach
A threshold vector autoregressive model that allows parameters to switch according to whether a threshold variable crosses an estimated threshold is employed to address the objective of this paper. The threshold value is determined endogenously using Hansen (1996) test. Generalized impulse responses introduced by Koop et al. (1996) are used to study the effects of government spending shocks on growth depending on their size, sign and timing with respect to the economic cycle. The author also uses a Cholesky decomposition identification scheme in order to identify discretionary government spending shocks in the non-linear model.
Findings
The empirical findings support the state-dependent effects of fiscal policy. In particular, the effects of 1 or 2 standard deviations expansionary or contractionary government spending shock on output are very small both on impact and in the long run; and a bit larger in downturns but has only a very limited effect or no effect in times of expansion. This result gives support to the evidence in the recent literature that fiscal policy in developing countries is overwhelmingly procyclical.
Originality/value
It adds to the scarce empirical fiscal literature of the South African economy in particular and developing economies in general by allowing non-linearities to estimate the effect of government spending shocks over economic cycle.