Work in Progress

• Monetary Policy In South Africa from 1994 to Now - ERSA working paper

  A personal viewpoint of monetary policy in democratic South Africa. Prepared for the SARB Biannual conference, Cape Town 27-28 of March 2025 (videos of the full program here).

• Assertive communication in Uncertain Times, V. Dadam and N Viegi

  To come soon. This is part of a larger project about central bank communication in emerging countries. A presentation on the general theme here.

• Waxing the floor: Excess Reserves and monetary policy implementation in emerging markets, K. Mncube and N. Viegi

  We are modelling the working of the "ample reserves" monetary policy framework in a small open emerging economy where the asset side of the central bank balance sheet is dominated by foreign exchange reserves.

Publications and Working Papers

List of publications and working papers, ordered from most recent to oldest. Click "Abstract" to expand it.

• 2026 Can monetary and fiscal policy account for South Africa's stagnation? Tumisang Loate & Nicola Viegi Applied Economics, vol. 58(11), pp. 2027–2042
  Abstract

  This paper examines the interaction between macroeconomic variables and the fiscal and monetary policy mix between 2012 and 2019, a period characterized by increased public debt and risk premium and low economic growth. We use a large Bayesian vector autoregressive model and find that monetary and fiscal policy fails to account for the observed lower real gross domestic product between 2012 and 2019. Based on their historical relationship, the results indicate that we should have observed much higher growth, especially during the 2015 to 2019 period. In addition, we find little evidence that the low growth during the period can be rationalized by the much-criticized anti-growth monetary policy.

• 2025 The bank lending channel of monetary policy transmission in South Africa Ekaterina Pirozhkova & Nicola Viegi The Quarterly Review of Economics and Finance, vol. 104
  Abstract

  This paper studies the bank lending channel of monetary policy in South Africa. We measure credit supply with homeloan data from banks and nonbanks and use monetary shocks via high-frequency asset price reactions to policy announcements in a proxy-SVAR model. We find that the bank lending channel is operative, as banks reduce the supply of homeloans after monetary tightening, negatively impacting the housing market. We also show that the deposit channel underpins the bank lending channel's effectiveness: after a monetary tightening, banks widen the deposit spread and the volume of deposits shrinks, which drives the lending channel since retail deposits are vital stable funding for banks.

• 2024 Trouble Every Day: Monetary Policy in an Open Emerging Economy Ekaterina Pirozhkova, Giovanni Ricco & Nicola Viegi CEPR Discussion Paper DP19094 / Working Paper
  Abstract

  Four factors drive the high-frequency impact of monetary policy announcements in South Africa: affecting short-, mid-, and long-term yields, and country risk. Controlling for information effects, we build IVs for conventional monetary policy, forward guidance, term premia, country risk and information shocks. Conventional monetary policy has textbook contractionary effects. Policy communication, particularly forward guidance, has persistent effects on output and prices. Country risk is a novel and powerful channel of monetary policy communication in emerging markets. By defending its independence, restating its inflation target, and addressing external shocks, the central bank can mitigate country risk and generate expansionary effects.

• 2024 Investigating unemployment hysteresis in South Africa Vincent Dadam & Nicola Viegi South African Journal of Economics, 92(3), 331–353
  Abstract

  This paper investigates hysteresis in South Africa's unemployment. First, the authors test the presence of hysteresis using traditional stationarity tests and non-linear transformation methods to identify two further characteristics of hysteresis, namely remanence and selective memory. In the second part of the paper, they estimate a simple insider–outsider model using a Bayesian vector autoregression methodology to identify the shocks driving unemployment dynamics. The main finding is that mark-up shocks and negative productivity shocks are the main drivers of hysteresis.

• 2023 Changing the inflation target in emerging markets: the reward of reducing risk Ekaterina Pirozhkova & Nicola Viegi Economics Bulletin, 43(3), 1453–1457
  Abstract

  This paper analyses the effects of the change made by the South African Reserve Bank (SARB) in its preferred definition of the inflation target in July 2017, from a range to a point target. The authors estimate the implications of this shift by means of a Bayesian vector autoregression-based counterfactual exercise. Their results show that the inflation target change allowed for a reduction in perceived risk.

• 2023 Sailing into the wind: evaluating the (near) future of monetary policy in South Africa Tumisang Loate & Ekaterina Pirozhkova & Nicola Viegi In C. Loewald & M. Stern (eds.), Unlocking growth prospects in post-pandemic South Africa, SARB, pp. 11–43

  Abstract not available online.

• 2022 An analysis of central bank decision-making Maria Demertzis & Catarina Martins & Nicola Viegi Bruegel Policy Brief

  Abstract not available online.

• 2022 Can National Treasury do contractionary monetary policy? Nicola Viegi Working Paper, South African Reserve Bank

  Abstract not available online.

• 2021 Low interest rates in Europe and the US: one trend, two stories Maria Demertzis & Nicola Viegi Bruegel Policy Contribution

  Abstract not available online.

• 2021 Estimating a New Keynesian Wage Phillips Curve Vincent Dadam & Nicola Viegi Working Papers 202107, University of Pretoria, Department of Economics

  Abstract not available online.

• 2021 The Transmission of Monetary Policy via the Banks' Balance Sheet — Does Bank Size Matter? Nicola Viegi (with others) Working Papers 202109, University of Pretoria, Department of Economics

  Abstract not available online.

• 2021 Sailing into the Wind: evaluating the near future of Monetary Policy in South Africa Nicola Viegi Working Paper, South African Reserve Bank

  Abstract not available online.

• 2021 The macroeconomic effect of fiscal policy in South Africa: A narrative analysis Nicola Viegi (with others) WIDER Working Paper Series, UNU-WIDER

  Abstract not available online.

• 2020 Spillovers of the Conventional and Unconventional Monetary Policy from the US to South Africa Alain Kabundi, Tumisang Loate & Nicola Viegi South African Journal of Economics, 88(4), 435–471
  Abstract

  This paper assesses the effect of US monetary policy on South Africa during the period 1990–2018. The authors separately analyse and compare the effect of conventional monetary policy, before the global financial crisis, and unconventional monetary policy thereafter, on South African macroeconomic and financial variables.

• 2020 The monetary policy of the South African Reserve Bank: stance, communication and credibility Alberto Coco & Nicola Viegi Economic Research and Statistics Department, South African Reserve Bank
  Abstract

  This paper analyses the evolution of the monetary policy stance, communication and credibility of the South African Reserve Bank (SARB) since 2000, when it adopted a flexible Inflation Targeting (IT) regime. Empirical results indicate that the stance became accommodative after the global financial crisis of 2009, with a tendency of the implicit inflation target to increase, while after 2014 it turned tighter and the implicit target declined.

• 2019 Why South Africa Is Cheap for the Rich and Expensive for the Poor: Reconsidering the Balassa-Samuelson Effect Nicola Viegi (with others) Policy Research Working Paper Series, The World Bank

  Abstract not available online.

• 2018 Systemic, Sectoral Risk and the Myth of a Corporate Savings Glut Vincent Dadam & Nicola Viegi World Bank Publications — Reports

  Abstract not available online.

• 2018 Markups and Concentration in South African Manufacturing Sectors: An Analysis with Administrative Data Johannes Fedderke, Nonso Obikili & Nicola Viegi South African Journal of Economics, 86(S1), 120–140
  Abstract

  This paper uses newly available firm-level tax data to evaluate the market structure in South African manufacturing sectors in the period 2010–2012. To describe the market structure, the authors compute markups for South African manufacturing firms and concentration indexes for 4-digit manufacturing sectors. They find both significant markups and significant concentration across most sectors, and compare these estimates with earlier South African studies and international benchmarks. They then examine the market structure based on concentration, firm size, and entry and exit dynamics to rule out potential explanations for the relatively high markups.

• 2017 Are Determinants of Portfolio Flows Always the Same? — South African Results from a Time Varying Parameter VAR Model Haakon Kavli & Nicola Viegi South African Journal of Economics, 85(1), 3–27
  Abstract

  This paper investigates whether the determinants of portfolio flows are stable over time, by estimating the time-varying relationship between portfolio flows to South Africa and two widely accepted determinants of such flows: the sovereign spread and global risk (measured by the VIX). Bond flows have become more sensitive to the VIX after 2010, while share flows were particularly sensitive at the peak of the 2008 global financial crisis but have not always responded significantly to changes in global risk at other times. The relationships are estimated using a time varying parameter VAR model with stochastic volatility.

• 2016 Foreign Aid and Foreign Direct Investment in Sub-Saharan Africa: A Panel Data Analysis Kafayat Amusa, Nara Monkam & Nicola Viegi Working Papers, University of Pretoria, Department of Economics

  Abstract not available online.

• 2016 Evolution of Monetary Policy Transmission Mechanism in Malawi: A TVP-VAR Approach Chance Mwabutwa, Nicola Viegi & Manoel Bittencourt Journal of Economic Development, 41(1), 33–55

  Abstract not available online.

• 2016 Banking Instability and Deposit Insurance: The Role of Moral Hazard Harold Ngalawa, Fulbert Tchana Tchana & Nicola Viegi Journal of Applied Economics, 19(2), 323–350
  Abstract

  If moral hazard explains banking instability arising from the adoption of deposit insurance, then deposit insurance should be associated with bank insolvency more than with bank runs. To test this hypothesis, the authors develop a new empirical framework distinguishing between banking instability initiated by panic withdrawals of deposits and instability initiated by bank insolvency. Using a dataset covering 118 countries over 1980–2004, they find that deposit insurance per se has no significant effect on either bank insolvency or bank runs. However, interacting deposit insurance with credit to the private sector reveals a positive and significant effect on bank insolvency and bank runs, suggesting that moral hazard outweighs the positive effect of deposit insurance on banking stability.

• 2016 The Political and Economic Dynamics of Foreign Aid: A Case Study of United States and Chinese Aid to Sub-Sahara Africa Kafayat Amusa, Nara Monkam & Nicola Viegi ERSA — Economic Research Southern Africa, 21(5), 363–373

  Abstract not available online.

• 2015 Labour Market and Monetary Policy in South Africa Nicola Viegi (with Vincent Dadam) Working Papers, South African Reserve Bank
  Abstract

  This paper analyses the influence of the South African labour market on the conduct of monetary policy. Because of the weak response of wages to changes in employment, the South African Reserve Bank is confronted by an unfavourable short-run unemployment-inflation trade-off that complicates the implementation of the inflation targeting framework. The paper first provides reduced-form evidence by estimating a form of the traditional wage Phillips curve, showing the weak relationship between wage dynamics and unemployment in South Africa, then interprets these results in a strategic framework analysing the role inflation targeting might play in either improving coordination or worsening the interaction between trade unions and the Central Bank.

• 2015 Portfolio Flows in a Two-Country RBC Model with Financial Intermediaries Haakon Kavli & Nicola Viegi Working Papers, University of Pretoria, Department of Economics
  Abstract

  The paper presents a two-country real business cycle model with a financial sector that intermediates portfolio flows. Changes in demand for financial assets from foreign investors relative to domestic investors give rise to portfolio flows, which can be absorbed before they affect the intermediary's demand for savings. The results show that financial shocks (e.g. risk) can be absorbed by optimal changes in the supply of risk-free assets, while real shocks (e.g. income) can be absorbed by keeping the supply of financial assets fixed and allowing prices to adjust to demand. Macroprudential regulation limiting the total risk exposure of the financial sector increases the volatility of portfolio flows but reduces the volatility of consumption and labour, thereby increasing welfare.

• 2013 Testing Creative Destruction in an Opening Economy: The Case of the South African Manufacturing Industries Philippe Aghion, Johannes Fedderke, Peter Howitt & Nicola Viegi Economics of Transition, 21(3), 419–450
  Abstract

  The authors test the predictions of a Schumpeterian growth model using data from South African manufacturing industries, examining how trade liberalization and competition affect innovation and productivity growth. They find that liberalization increases the pace of creative destruction, with effects that vary depending on how close industries are to the technological frontier.

• 2013 Interaction of Formal and Informal Financial Markets in Quasi-Emerging Market Economies Harold Ngalawa & Nicola Viegi Economic Modelling, 31, 614–624
  Abstract

  The authors demonstrate that, in some instances, interest rates in the formal and informal financial sectors change in diametrically opposed directions, with the implication that the informal financial sector may frustrate monetary policy, the extent of which depends on the size of the informal sector.

• 2012 A Credibility Proxy: Tracking US Monetary Developments Maria Demertzis, Massimiliano Marcellino & Nicola Viegi The B.E. Journal of Macroeconomics, 12(1), 1–36

  Abstract not available online.

• 2012 The High-Frequency Response of the Rand-Dollar Rate to Inflation Surprises Greg Farrell, Shakill Hassan & Nicola Viegi Working Papers, South African Reserve Bank
  Abstract

  The authors examine the high-frequency response of the rand-dollar nominal rate within ten-minute intervals around official inflation announcements, showing that the rand appreciates (depreciates) on impact when inflation is higher (lower) than expected — evidence that "bad news" about inflation is "good news" for the currency. The effect only applies after the adoption of inflation targeting, and the findings are consistent with market participants' belief in a credible inflation-targeting policy in South Africa; they can be used to monitor changes in currency-market perceptions about the monetary policy regime.

• 2011 Dynamic Effects of Monetary Policy Shocks in Malawi Harold Ngalawa & Nicola Viegi South African Journal of Economics, 79(3), 224–250
  Abstract

  This paper investigates the process through which monetary policy affects economic activity in Malawi. Using innovation accounting in a structural vector autoregressive model, the authors establish that monetary authorities in Malawi employ hybrid operating procedures and pursue both price stability and high growth and employment objectives.

• 2010 Anchors for Inflation Expectations Maria Demertzis, Massimiliano Marcellino & Nicola Viegi DNB Working Papers 229 / EUI ECO

  Abstract not available online.

• 2009 Inflation Targeting: A Framework for Communication Maria Demertzis & Nicola Viegi The B.E. Journal of Macroeconomics, 9(1), 1–32
  Abstract

  The authors analyze how the provision of an explicit numerical inflation target provides a focal point for agents' expectations when information is imperfect. Communicating a target and a tolerance band around it provides a clear framework for evaluating monetary policy outcomes. They show how inflation targeting exploits the self-reinforcing loop between success and credibility to help the Central Bank endure large and long-lasting shocks, and derive the optimal band width around the target, which exploits the benefits of providing a focal point while maximizing the probability of success.

• 2008 A Measure for Credibility: Tracking US Monetary Developments Maria Demertzis, Massimiliano Marcellino & Nicola Viegi CEPR Discussion Paper No. DP7036

  Abstract not available online.

• 2005 Inflation Targets as Focal Points Maria Demertzis & Nicola Viegi ERSA Working Paper Series 002 (also published in International Journal of Central Banking, 2008, 4(1), 55–87)
  Abstract

  The authors model monetary policy as an information game in which individuals form their expectations based on all the information available to them (public and private), and are therefore subject to the noise that characterizes that information. They apply Bacharach's (1993) variable-universe methodology to provide a framework for assessing everyone's interpretations. The paper's contribution is, first, to describe monetary policy as an information game in which interpretations matter, and second, to provide a way of solving for these interpretations.

• 2004 Transparency and the Strategic Use of Private Information in Monetary Policy Andrew Hughes Hallett & Nicola Viegi In Aspects of Globalisation, pp. 121–149

  Abstract not available online.

• 2003 Imperfect Transparency and the Strategic Use of Information: An Ever Present Temptation for Central Bankers? Andrew Hughes Hallett & Nicola Viegi Manchester School, 71(5), 498–520
  Abstract

  Using standard models — where there are also opportunities to use fiscal policy — the authors show that a lack of transparency has very different effects depending on whether it represents a lack of political transparency or a lack of economic (information) transparency. The former allows the central bank to create and exploit a "strategic" reputation to its own advantage; the latter does not. Political transparency helps us understand how monetary policy decisions are made, while economic transparency would reveal what information went into those decisions.

• 2002 Inflation Targeting as a Coordination Device Maria Demertzis, Andrew Hughes Hallett & Nicola Viegi Open Economies Review, 13(4), 341–362
  Abstract

  The paper analyses inflation targeting when two independent policy authorities (a central bank and a national government) have divergent preferences for the optimal policy mix. The authors demonstrate that the main advantage of inflation targeting, as a policy regime, is that it represents a simple proxy for full coordination between policy authorities: it helps because it reduces conflicts between fiscal and monetary policy, especially where there are strong "spillovers" between the two. These results are tested, and largely validated, in a simulation framework using a small open-economy calibrated model.

• 2001 Labour Market Reform and Monetary Policy in EMU: Do Asymmetries Matter? Andrew Hughes Hallett & Nicola Viegi CEPR Discussion Papers 2979

  Abstract not available online.

• 1999 Can the ECB be Truly Independent? Should It Be? Maria Demertzis, Andrew Hughes Hallett & Nicola Viegi Empirica, 26(3), 217–240
  Abstract

  Most of the literature on the independence of the Central Bank assumes that only one policy instrument is available: monetary policy. If fiscal policy is introduced as well, and preferences may differ among policy-makers, the situation is radically different. The authors show that fiscal policy can be used strategically alongside monetary policy, which changes the conclusions of the standard central bank independence debate.

• 1998 Independently Blue? Accountability and Independence in the New European Central Bank Maria Demertzis & Andrew Hughes Hallett CEPR Discussion Papers

  Abstract not available online.