Does the Economic Policy Uncertainty Channel Impact the Influence of Expansionary Monetary Policy Changes on Output Dynamics?

  • Eliphas Ndou
  • Thabo Mokoena


Evidence shows that an elevated economic policy uncertainty shock slows down economic growth, which is consistent with the real option theory. In addition, evidence shows that low economic policy uncertainty amplifies the economic growth reaction to an unexpected cut in the repo rate. By contrast, the actual economic growth rises less than the counterfactual responses in the high economic policy uncertainty regime. From policy perspective, policymakers anticipating a certain magnitude of the impact from stimulatory policy shock should consider economic policy uncertainty regimes in their policy decisions; otherwise policy effects may fall short of their expectations and induce more uncertainty.


  1. Aastveit, K. A., Natvik, G.J., & Sola, S. (2017). Economic uncertainty and the influence of monetary policy. Journal of International Money and Finance, 76, 50–67.Google Scholar
  2. Baker, S. R., Bloom, N., & Davis, S. J. (2015). Measuring economic policy uncertainty (NBER Working Paper 21633).Google Scholar
  3. Bernanke, B. S. (1983). Irreversibility, uncertainty, and cyclical investment. The Quarterly Journal of Economics, 98(1), 85–106.CrossRefGoogle Scholar
  4. Dixit, A. K., Robert S. S., & Pindyck, R. S. (1994). Investment under uncertainty. Princeton, NJ: Princeton University Press.Google Scholar
  5. Hlatshwayo, S., & Saxegaard, M. (2016). The consequences of policy uncertainty: Disconnects and dilutions in the South African real effective exchange rate-export relationship (International Monetary Fund Working Paper/16/113).Google Scholar
  6. Kraft, H., Schwartz, E. S., & Weiss, F. (2013). Growth options and firm valuations (NBER Working Paper w18836).Google Scholar
  7. Ndou, E., Gumata, N., & Ncube, M. (2017). Global economic uncertainties and exchange rate shocks, Transmission Channels to the South African Economy. Basingstoke: Palgrave Macmillan.Google Scholar
  8. Stein, L. C. R., & Stone, E. C. (2013). The effect of uncertainty on investment, hiring and R&D: Casual evidence from equity options.Google 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