The properties of cycles in South African financial variables and their relation to the business cycle

Stellenbosch Working Paper Series No. WP02/2005
 
Publication date: 2005
 
Author(s):
[protected email address] (Department of Economics, Stellenbosch University)
 
Abstract:

Linkages between the financial and real sectors of the economy have been studied extensively over the past twenty years to enhance business cycle forecasting on the one hand and improve portfolio allocation on the other. The broad aim of the paper is to investigate the relationship between cycles in the real economy and cycles in several financial variables from the South African money, bond and stock markets for the period from 1986 onwards. The paper will aim to describe the properties of cycles in such financial variables, where cycles were derived using a dating algorithm similar to that used to determine business cycle turning points. This method is consistent with the Burns and Mitchell tradition of business cycle analysis, but in contrast with the dominant approach in academic research, i.e. deviation cycles relying on time-series detrending. Consequently, the paper will attempt to relate phases in the cycles of financial variables with business cycle phases to establish which variables satisfy preliminary requirements for leading indicators of the business cycle. The paper will consider both classical cycles as well as cycles in the growth rate of the different variables and include international variables, due to the potential importance of international developments for financial markets in an open economy.

 
JEL Classification:

E30, E32, E37, E44, E47

Keywords:

business cycles, South Africa, financial variables, real economy

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22 February 2021
As is often the case, domestic financial markets largely ignored local developments, including a lower-than-expected January consumer inflation print, last week and were swept along by the intensification of the global reflation trade. Outside of the inflation release, the domestic data releases continued to show that there was still some recovery momentum...

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Upcoming Seminars

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BER Weekly

22 February 2021
As is often the case, domestic financial markets largely ignored local developments, including a lower-than-expected January consumer inflation print, last week and were swept along by the intensification of the global reflation trade. Outside of the inflation release, the domestic data releases continued to show that there was still some recovery momentum...

Read the full issue