The properties of cycles in South African financial variables and their relation to the business cycle
Date
2006-03
Authors
Boshoff, Willem Hendrik
Journal Title
Journal ISSN
Volume Title
Publisher
Stellenbosch : University of Stellenbosch
Abstract
The goal of this thesis is twofold: it aims, firstly, at a description of cycles in South
African financial variables and, secondly, at the evaluation of the relationship
between cycles in financial variables and the South African business cycle. The study
is based on the original business cycle framework of Arthur Burns and Wesley
Mitchell, but incorporates recent contributions by Australian economists Don Harding
and Adrian Pagan, as well as the work of the Economic Cycle Research Institute in
New York.
Part I of the thesis is concerned with the characteristics of cycles in financial variables
within the South African context. The first chapter presents a taxonomy of the
concepts of classical, deviation and growth rate cycles in order to establish a simple
reference framework for cycle concepts. At this point the concept of a ‘turning point
cycle’ is introduced, with particular focus on the non-parametric method of turning
point identification, following Harding and Pagan’s recent translation of the original
work of Burns and Mitchell into a modern version with a sound statistical basis. With
the turning points identified the dissertation proceeds to an exposition of descriptive
measures of expansion and contraction phases. The second chapter entails an
empirical report on descriptive results for amplitude and duration characteristics of
cycle phases in the different financial variables, with separate reports for classical
cycles and growth rate cycles. Chapter two concludes with a series of tables in which
the behaviour of cycle phases are compared for different financial variables.
Part II considers financial variables as potential leading indicators of the business
cycle in South Africa. Chapter 3 introduces the concept ‘leading indicator’ to this end
and distinguishes the original concept from modern, econometric versions. The
chapter then introduces a framework for evaluating potential leading indicators, which
emphasises two requirements: firstly, broad co-movement between cycles in the
proposed leading indicator and the business cycle and, secondly, stability in the
number of months between turning points in cycles of the proposed indicator and
business cycle turning points. The capacity of potential indicators to meet these
criteria is measured via the concordance statistic and the ‘lead profile’ respectively.
Chapter four provides the statistical basis for the concordance statistic, after which the empirical results (presented separately for classical and growth rate cycles) are
presented. The fifth chapter presents the statistical test for the stability of the interval
by which cyclical turning points in the potential indicator lead turning points in the
business cycle. Empirical results are presented in both tabular form (the ‘lead
profile’) and graphical form (the ‘lead profile chart’). As far as can be determined,
this analysis represents the first application of the ‘lead profile’ evaluation to financial
variables. Chapter six concludes by presenting a summary of the results and a brief
comparison with findings from an econometric study of leading indicators for South
Africa.
Description
Thesis (MComm (Economics)--University of Stellenbosch, 2006.
Keywords
Dissertations -- Economics, Theses -- Economics