Does Economic Policy Uncertainty Impact the Pass-Through of the Repo Rate to the Bank Lending Rates?

  • Eliphas Ndou
  • Thabo Mokoena


Evidence shows that economic policy uncertainty (EPU) shocks directly impact the lending rate dynamics and the effects differ, depending on the persistence of the economic policy uncertainty shock. The persistently rising (declining) EPU shock leads to persistent increase (decrease) in the lending rates. This finding implies that the persistence of the EPU shocks matters for the evolution of the lending rates. In addition, evidence shows that the actual rise in lending rate exceeds the counterfactual due to the repo rate tightening shocks, when the elevated EPU channel is operational in the model. This suggests that the elevated EPU amplifies the increase in the lending rate to positive repo rate shock. By contrast, the negative EPU channel dampens the increases in lending rate to positive repo rate shocks.


  1. Baum, C., Caglayan, M., & Ozkan, N. (2013). The role of uncertainty in the transmission of monetary policy effects on bank lending. Manchester School, University of Manchester, 81(2), 202–225.CrossRefGoogle Scholar
  2. Bloom, N., Stephen, B., & Van Reenen, J. (2007). Uncertainty and investment dynamics. Review of Economics Studies, 74(2), 391–415.CrossRefGoogle Scholar
  3. Francis, B. B., Hasan, I., & Zhu, Y. (2014). Political uncertainty and bank loan contracting. Journal of Empirical Finance, 29, 281–286.CrossRefGoogle Scholar
  4. Hlatshwayo, S., & Saxegaard, M. (2016). The consequences of policy uncertainty: Disconnects and dilutions in the South African real effective exchange rate-export relationship (IMF Working Chapter WP/16/113).Google Scholar
  5. Nini, G., Smith, D. C., & Amir, S. (2012). Credit control rights, corporate governance, and firm value. Review of Financial studies, 25(6), 1713–1761.CrossRefGoogle Scholar
  6. Pastor, L., & Veronesi, P. (2013). Political uncertainty and risk premia. Journal of Financial Economics, 110(3), 520–545.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Eliphas Ndou
    • 1
    • 3
    • 4
  • Thabo Mokoena
    • 2
  1. 1.Economic Research DepartmentSouth African Reserve BankPretoriaSouth Africa
  2. 2.Department of Economic, Small Business Development, Tourism and Environmental AffairsFree State Provincial GovernmentBloemfonteinSouth Africa
  3. 3.School of Economic and Business SciencesUniversity of the WitwatersrandJohannesburgSouth Africa
  4. 4.Wits Plus, Centre for Part-Time StudiesUniversity of the WitwatersrandJohannesburgSouth Africa

Personalised recommendations