Is Macroeconomic Uncertainty a Source of Subdued and Volatile Economic Recovery?

Abstract

This chapter assesses the extent to which macroeconomic uncertainty shocks are an important driver of fluctuations in economic activity. How relevant are the indirect channels in transmitting shocks via the South African economic policy uncertainty channel to consumption expenditure and GDP growth? Evidence shows that positive macroeconomic uncertainty shocks adversely affect economic growth and consumption. In addition, macroeconomic uncertainty magnified the recessionary effects of the global financial crisis on economic growth during the recession in 2009. Moreover, various uncertainties mitigated the contributions from the repo rate reductions in lowering debt serving costs, especially during the recession. Furthermore, persistent macroeconomic uncertainty shocks tend to depress macroeconomic variables more than non-persistent shocks. Hence policymakers should distinguish between persistent and non-persistent uncertainty shocks as the nature of the uncertainty shocks has a bearing on the design of policy responses to deal with households and companies.