An empirical analysis of systemic and macroeconomic risk in South Africa: an application of the quantile regression

Eita, Joel Hinaunye and Ngobese, Sibusiso Blessing and Muteba Mwamba, John Weirstrass (2020): An empirical analysis of systemic and macroeconomic risk in South Africa: an application of the quantile regression.

Abstract

This study conducts an empirical analysis on how the build-up of systemic risk in the financial system affects downside macroeconomic risk of the South African economy. The study outlines and apply several systemic risk measures, namely the conditional value at risk, principal component analysis, average conditional volatility and interest rate spreads. Thereafter, the study employs the quantile regression to evaluate the predictive ability of each systemic risk measures to lower quantiles of economic activity. The study reveals that each of the systemic risk measures are significant predictors of macroeconomic risk. The results of this study serve as important tools that can help South African financial regulators and policymakers to foresee and prevent systemic risk. It enables regulators to identify the build-up of systemic vulnerabilities, systemically important financial and too connected to fail institutions. These are useful in the sense that they serve as early warning signals of financial systemic risk and the consequences of such on macroeconomic outcomes.

• Item Type: MPRA Paper
• Language: English
• Keywords: systemic risk, macroeconomic risk, quantile regression, principal component analysis
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G0 - General > G01 - Financial Crises; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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