By Christopher Malikane; Director - Macro-Financial Analysis Group
School of Economic and Business Sciences University of the Witwatersrand
and Lelly Nghixulifwa, Bank of Namibia.

 Abstract of an Article Published in MEFMI Forum Issue 9 June 2010

This paper provides estimates of a small quarterly projection model for Namibia.

The features of this model include significant effects of the lending channel, imported inflation from South Africa and significant effects of South Africa’s business cycle on the Namibian economy. The major finding of this paper is that the nominal, rather than the real, interest rate determines aggregate demand and real exchange rate fluctuations. The model allows Namibia to be affected by both South African and global shocks, through the United States Dollar ($)(US) interest rate.

South African shocks work through both the Phillips and IS curves, whereas global shocks work through the adjustment in the real exchange rate. The model generally outperforms simple, univariate auto-regressive models of each of its components, delivers good quarterly forecasts of inflation, tracks the interest rate very well and generates output fluctuations that are consistent with the actual.