Original Research

External shocks, financial markets and the real economy: Policy options in South Africa

R. A. Stuart, P. A. Black
South African Journal of Economic and Management Sciences | Vol 3, No 3 | a2619 | DOI: https://doi.org/10.4102/sajems.v3i3.2619 | © 2018 R. A. Stuart, P. A. Black | This work is licensed under CC Attribution 4.0
Submitted: 06 July 2018 | Published: 30 September 2000

About the author(s)

R. A. Stuart, Department of Economics, Rhodes University, South Africa
P. A. Black, South Africa Foundation and University of Stellenbosch, South Africa

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Abstract

The paper considers the transmission of an external shock through the bond, equity, money and foreign exchange markets and, depending on the nature and duration of the shock, the attendant effects on various sectors of the South African economy. While it is acknowledged that the ability of the Reserve Bank to intervene in the foreign exchange markets is limited, it is argued that the current policy may not be appropriate in the face of a sustained speculative attack. Instead, a policy of selective intervention aimed at the relative degrees of change in foreign exchange and interest rates may be used to affect the distribution of costs between various sectors of the economy.

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