Savings, inflation expectations and structural breaks in South Africa: cointegration analysis  

Oleh:

Khumalo, Mokhele John

Jenis: Article from Proceeding
Dalam koleksi: SIBR-Thammasat 2014 Conference on Interdisciplinary Business & Economics Research June 5th- 7th, 2014 di Emerald Hotel Bangkok, page 1.
Topik: Savings; inflation expectations; Zivot-Andrews; structural breaks
Fulltext: b14-052.pdf (13.33KB)

Isi artikel

The study uses the time series data for the period 1961 to 2012 to establish the existence of any possible long run relationships between savings and inflation expectations in the presence of structural breaks in South Africa. As the requirement to establish the stationarity of the series, the Dickey – Fuller generalised Least Squares (DFGLS) and the Ng – Perron tests were utilised. The results from DFGLS and Ng-Perron showed that all variables under consideration were integrated of order zero, while on the other hand the Zivot – Andrews (Z-A test) test showed that only expected inflation and growth of gross domestic product (GDPG) were found to be stationary at levels. Due to the large span of data used, the establishment of the structural breaks did play a role in destabilizing the series and hence give different results. The Z-A test showed that there were structural breaks in the years 1981, 1983, 1986, 1992, and 1994 in interest rates, unemployment, expected inflation, savings and GGDP respectively. This suggested some possible cointegration amongst the variables. The cointegration test was performed using the Johansen approach, which applied the maximum Eigen value and the trace tests. The cointegration results revealed the existence of at most one cointegration vector and as such the Vector Autoregression Correction model (VECM) was established. The long run estimates proved that savings was affected negatively by inflation expectations and interest rate, while unemployment and GGDP poised a positive influence. The short –run dynamics indicate that about 0.0178 or 1.78 % of savings is corrected each year in South Africa when there was a shock. This shows a very slow response, meaning it takes much long for savings in South Africa to restore its equilibrium. Our overall results indicate that the negative effect of inflation expectations cannot be refuted and that it exerts a significant impact of the aggregate savings and or spending in the economy.

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