McKenzie, Rex and Pons-Vignon, Nicolas (2012): Volatile Capital Flows and a Route to Financial Crisis in South Africa. Published in: Augur Working Paper Series No. WP2 (12. February 2012)
Download (899kB) | Preview
This is a review article; its purpose is to support a debate on the use of the best available economic theory and evidence in monetary policy in contemporary South Africa. In order to do so, I contrast South Africa's laissez-faire management of capital flows with the experience of other countries where the authorities have opted to use capital control techniques of one type or another. The empirical evidence is fairly substantial, capital control techniques can play a useful part in staving off fragility and financial crisis in the event of sharp surges in capital flows. The key idea is that capital control techniques would offer the authorities more freedom and flexibility in the management of capital flows and the pursuit of monetary policy. The article follows on from Mohammed (2010) who concludes that South African policy makers have not yet learned the relevant lessons stemming from their neoliberal embrace. This article takes up that theme and uses macroeconomic data to show that without capital controls South Africa courts a financial crisis that can be transmitted via any one of at least three channels.
|Item Type:||MPRA Paper|
|Original Title:||Volatile Capital Flows and a Route to Financial Crisis in South Africa|
|Keywords:||monetary policy, capital flows, capital controls|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||Rex A McKenzie|
|Date Deposited:||20. Jul 2012 14:07|
|Last Modified:||08. Sep 2015 07:34|
Ashman,Samantha, Fine Ben, Newman, Susan, 2011, Amnesty International? The Nature Scale and Impact of Capital Flight from South Africa, Journal of Southern African Studies, 37: 1,7-25.
Cordero, Jose Antonio and Juan Antonio Monteceino, 2010, Capital Controls and Monetary Policy in Developing Countries, Center for Economic and Policy Research, Washington DC.
Crotty, James and Gerald Epstein, 1996, In Defense of Capital Controls, Socialist Register
Draper, Peter and Andreas Freytag, 2008, South Africa’s Current Account Deficit: Are Proposed Cures worse than the Disease? South African Institute of international Affairs, Univesity of Witswatersrand, Johannesburg, South Africa.
DU Plessis, Stan and Ben Smit, Stellenbosch Economic Working Papers, 1 / 2006
Eichengreen, B. 2003. Capital flows and crises. Cambridge M.A. MIT Press.
Epstein, Gerald, 2003, Alternatives to Inflation Targeting Monetary Policy for Stable and Egalitarian Growth, A Brief Research Summary, Political Economy Research Institute, UMass Amherst, Working Paper Series #62. 33
Fleming, M. 1962. “Domestic financial policies under fixed and under floating exchange rates.” International Monetary Fund Staff Papers, 9 (3): 369–380.
Farrell, N and KR Todani, 2004, "Capital Flows, exchange control regulations and exchange rate policy: The South African Experience, SARB.
Frankel, Jeffrey, On the Rand: Determinants of the South African Exchange Rate, South African Journal of Economics (2007) Volume: 75, Issue: 3, Pages: 425-441
Growth, Employment and Redistribution: A Macroeconomic Strategy, Department of Finance, 1996, Pretoria, South Africa
Harris, Laurence, 2009, Capital Flows and Policy in Emerging Market Countries
IMF 2010“How Did Emerging Markets Cope in the Crisis?”, IMF Policy Paper, 15 June.
IMF Staff Discussion, Note April 5 2011, SDN/1106, Managing Capital Inflows: What Tools to use? (Jonathan D. Ostry, Atish R Ghosh et al)
Koelble, A and Edward LiPuma, The Effects of Circulatory Capitalism on Democratization: Observations from South Africa and Brazil, Democratization. Vol. 13, No.4, August 2006, pp.605-631
Marais, Hein, 2011, South Africa Pushed to the Limit, University of Cape Town Press.
McKenzie, RA, 2011, Capitalism with Derivatives: Fragility and Instability in Contemporary Finance, Review of Radical Political Economics, June, 2011, 43 (2).
Mohamed, Seeraj, Capital inflows since the End of Apartheid and the Currency Crisis of 2001, Forum 2003 Papers, TIPS, Development Policy Research Unit, School of Economics, University of Cape Town
Mohamed, Seeraj, 2010, The State of the South African Economy
MERG, 1994, “Making Democracy Work: A Framework for Macroeconomic Policy in South Africa” Oxford University Press, USA.
Nesvetailova, A. 2007. Fragile finance. Hampshire, UK: Palgrave Macmillan.
Noland, Marcus, Institute for International Economics, Working Paper Series, # WP 05-4, June 2005.
Pollin, Robert and Gerald Epstein, James Heintz and Leonce Ndikumana, 2007, An Employment Targeted economic Program for South Africa, Edward Elgar Publishing.
Thomas, Clive Y; The Golden Straightjacket, UWI Conference Presentation on Jamaica’s Banking Crisis, 1999, Kingston, Jamaica