University of Pretoria

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09:00-10:00 (GMT+2)

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Virtual

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Modelling a monetary response to COVID shocks in a CGE model of South Africa

Most CGE models, including the University of Pretoria General Equilibrium Model (UPGEM) for South Africa, focus entirely on the real side of the economy. Implicitly these models assume that monetary policy accommodates whatever the CGE model says about movements in: macro variables such as GDP, investment, the balance of payments and the public-sector deficit; and micro variables such as industry outputs and employment. In this presentation, based on joint work between CGE modellers at UP and Victoria University, Prof Peter Dixon describes a version of UPGEM which has been extended to include a financial module. With this module in place, accommodating monetary policy in UPGEM becomes explicit and the effects of monetary policy on both macro and industry variables can be simulated. What finance-enhanced UPGEM delivers is illustrated in simulations of possible monetary responses to COVID-related shocks such as: business shutdowns; reductions in consumer confidence; and unavoidable public-sector budgetary blowouts associated with poverty alleviation and medical interventions.