Financial Stress Index and Economic Activity in South Africa: New Evidence
The importance of a sound and stable financial system and by extension economic stability was brought to the fore by the global financial crisis (GFC). The economic and social costs of the GFC have renewed the commitment of stakeholders in the financial sector including central banks to develop inst...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2020-12-01
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| Series: | Economies |
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| Online Access: | https://www.mdpi.com/2227-7099/8/4/110 |
| _version_ | 1827700370401394688 |
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| author | Kehinde Damilola Ilesanmi Devi Datt Tewari |
| author_facet | Kehinde Damilola Ilesanmi Devi Datt Tewari |
| author_sort | Kehinde Damilola Ilesanmi |
| collection | DOAJ |
| description | The importance of a sound and stable financial system and by extension economic stability was brought to the fore by the global financial crisis (GFC). The economic and social costs of the GFC have renewed the commitment of stakeholders in the financial sector including central banks to develop instruments and methodologies that will be useful in monitoring financial stress within the financial system and the real economy. This study contributes to the growing literature by developing a financial stress indicator for the South African financial market. The financial stress indicator (FSI) is a single aggregate indicator that is constructed to reflect the systemic nature of financial instability and also to measure the vulnerability of the financial system to both internal and external shocks. Using the principal component analysis (PCA), the results show that financial stress can be identified by the financial stress indicator. Furthermore, using a recursive Vector Autoregression (VAR) model to estimate the impact of financial stress on output and investment, the result shows that financial stress has a negative impact on economic growth and investment, though not immediately. FSI is very useful for gauging the effectiveness of government measures to mitigate the impact of financial stress. Concerted effort to stimulate investment and domestic production by relevant stakeholders is necessary to mitigate the impact of financial stress. This will go a long way to alleviating the impact of the financial stress on industrial production, employment and the economy at large. |
| first_indexed | 2024-03-10T14:10:17Z |
| format | Article |
| id | doaj.art-f0794b8a6a8f45d097387eaa09f1c346 |
| institution | Directory Open Access Journal |
| issn | 2227-7099 |
| language | English |
| last_indexed | 2024-03-10T14:10:17Z |
| publishDate | 2020-12-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Economies |
| spelling | doaj.art-f0794b8a6a8f45d097387eaa09f1c3462023-11-21T00:18:02ZengMDPI AGEconomies2227-70992020-12-018411010.3390/economies8040110Financial Stress Index and Economic Activity in South Africa: New EvidenceKehinde Damilola Ilesanmi0Devi Datt Tewari1Department of Economics, Faculty of Commerce, Administration and Law, University of Zululand, Private Bag X1001, KwaDlangezwa 3886, South AfricaDepartment of Economics, Faculty of Commerce, Administration and Law, University of Zululand, Private Bag X1001, KwaDlangezwa 3886, South AfricaThe importance of a sound and stable financial system and by extension economic stability was brought to the fore by the global financial crisis (GFC). The economic and social costs of the GFC have renewed the commitment of stakeholders in the financial sector including central banks to develop instruments and methodologies that will be useful in monitoring financial stress within the financial system and the real economy. This study contributes to the growing literature by developing a financial stress indicator for the South African financial market. The financial stress indicator (FSI) is a single aggregate indicator that is constructed to reflect the systemic nature of financial instability and also to measure the vulnerability of the financial system to both internal and external shocks. Using the principal component analysis (PCA), the results show that financial stress can be identified by the financial stress indicator. Furthermore, using a recursive Vector Autoregression (VAR) model to estimate the impact of financial stress on output and investment, the result shows that financial stress has a negative impact on economic growth and investment, though not immediately. FSI is very useful for gauging the effectiveness of government measures to mitigate the impact of financial stress. Concerted effort to stimulate investment and domestic production by relevant stakeholders is necessary to mitigate the impact of financial stress. This will go a long way to alleviating the impact of the financial stress on industrial production, employment and the economy at large.https://www.mdpi.com/2227-7099/8/4/110GFCinvestmentPCASouth Africasystemic risk |
| spellingShingle | Kehinde Damilola Ilesanmi Devi Datt Tewari Financial Stress Index and Economic Activity in South Africa: New Evidence Economies GFC investment PCA South Africa systemic risk |
| title | Financial Stress Index and Economic Activity in South Africa: New Evidence |
| title_full | Financial Stress Index and Economic Activity in South Africa: New Evidence |
| title_fullStr | Financial Stress Index and Economic Activity in South Africa: New Evidence |
| title_full_unstemmed | Financial Stress Index and Economic Activity in South Africa: New Evidence |
| title_short | Financial Stress Index and Economic Activity in South Africa: New Evidence |
| title_sort | financial stress index and economic activity in south africa new evidence |
| topic | GFC investment PCA South Africa systemic risk |
| url | https://www.mdpi.com/2227-7099/8/4/110 |
| work_keys_str_mv | AT kehindedamilolailesanmi financialstressindexandeconomicactivityinsouthafricanewevidence AT devidatttewari financialstressindexandeconomicactivityinsouthafricanewevidence |