The effects of U.S. quantitative easing on South Africa

• DOI: http://doi.org/10.1002/rfe.1074
• Author: Eric Olson,John Meszaros
• Published date: 01 April 2020
• Date: 01 April 2020

Rev Financ Econ. 2020;38:321–331. wileyonlinelibrary.com/journal/rfe

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© 2019 University of New Orleans

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INTRODUCTION

In 2012, Gill Marcus, the governor of the South African Reserve bank at the time, stated: “… a high degree of [macroeconomic]

volatility has been experienced…this is not South Africa‐specific, but a general emerging market phenomenon.”1

Her belief

was that advanced countries were causing volatility in and potentially harming emerging economies with large and unusual

monetary policy operations. China’s deputy representative to the World Trade Organization expressed a similar view regarding

the Federal Reserve’s large‐scale asset purchase programs: “We, together with many other countries, have been critics of this

irresponsible and beggar‐thy‐neighbor policy.”2

The primary concern of emerging economies’ leaders was that, as advanced

economies engaged in quantitative easing programs, it could cause rapid capital inflows, inflationary pressure, and general

macroeconomic instability. However, there was pushback against this view. Former Federal Reserve Chairman, Ben Bernanke,

argued that quantitative easing programs had little, if any, effect on emerging economies’ growth.3

We focus on the South African economy due to its membership in the so‐called “BRICS” group of nations and because of

its reliable and long‐term data. Figure 1 displays the adjusted St. Louis monetary base over the 1960–2018 time period.

As shown in Figure 1, the monetary base increased dramatically when the Federal Reserve began its quantitative easing

programs post‐2008. Thus, the aim of this paper is to examine whether the Federal Reserve’s quantitative easing (hereafter

QE) programs affected South Africa’s economy and contribute to the broader literature examining the effects of the Federal

Reserve’s QE programs on emerging economies. Our primary aim is to evaluate what effects the QE programs had on macro-

economic variables. Using a VAR, we seek to establish whether monetary policy in the United States affected the South African

economy and whether the unconventional QE programs had different effects than conventional open market operations. We

might expect a difference as the magnitude of QE was particularly large compared to normal policy operations. To preview our

results, we do not find evidence of much impact of QE on South Africa’s economy. This was consistent across two measures

of monetary expansion (the U.S. monetary base and the Center for Financial Stability’s Divisia M4 measure). The rest of the

Received: 3 April 2018

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Revised: 13 June 2019

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Accepted: 24 June 2019

DOI: 10.1002/rfe.1074

ORIGINAL ARTICLE

The effects of U.S. quantitative easing on South Africa

JohnMeszaros1*

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EricOlson2

*This research was prepared by the author(John Meszaros) in his personal capacity. The opinions expressed in this article are the author’s own and do not

necessarily reflect the views of the United States Postal Service or the United States government.

1U.S. Postal Service, Washington, DC

2Collins College of Business,University of

Tulsa, Tulsa, Oklahoma

Correspondence

John Meszaros, U.S. Postal Service,

Washington, DC, USA.

Emails: jmmeszaros@mix.wvu.edu, john.

meszaros@yahoo.com

Abstract

This paper investigates the impact of the Federal Reserve’s monetary policy on the

economy of South Africa, particularly during the period of quantitative easing and

thereafter from 2009 to 2018. A VAR model, including South Africa’s inflation, out-

put, a stock market index, exchange rate, and South Africa’s policy rate is examined

to determine the impact of the Federal Reserve’s actions. Our results show that the

Federal Reserve’s quantitative easing programs had only slight overall effects on

South Africa’s economy. However, the way monetary policy is measured appears to

have important effects for studies of international monetary spillovers as the results

differ depending on the type of monetary policy measure used.

KEYWORDS

emerging economies, monetary policy, quantitative easing, South Africa