Determinants of Financial Stability and Development in South Africa: Insights from a Quantile ARDL Model of the South African Financial Cycle

This study investigates the short-run and long-run dynamics of the financial cycle in South Africa, focusing on its macroeconomic drivers and their asymmetric effects across different phases. It addresses the persistent challenge in emerging market economies of balancing financial development and stability amidst volatile conditions. Using monthly data from 2000 to 2024, the research employs a quantile autoregressive distributed lag (QARDL) model to capture the heterogeneity and persistence of macro-financial linkages across the financial cycle’s distribution. The use of the QARDL model in this study allows for capturing asymmetric and quantile-specific relationships that traditional linear models might overlook. Findings reveal that monetary policy, and the housing sector are key drivers of long-term financial development in South Africa, showing positive effects. Conversely, exchange rate movements, inflation, money supply, and macroprudential policy dampen financial development. Short-term financial booms are associated with GDP growth, credit, share, and housing prices. Money supply and inflation are more closely linked to burst phases. These results underscore the importance of policy coordination, particularly between monetary and macroprudential authorities, to balance promoting financial development and ensuring stability in emerging markets. This study contributes to the empirical literature and offers practical insights for policymakers.