Monetary policy shocks and unemployment fluctuations: examining asymmetric effects in South Africa

Purpose This study investigates the asymmetric effects of monetary policy shocks on unemployment in South Africa, aiming to understand whether expansionary and contractionary monetary interventions have differing impacts on labor market outcomes. Design/methodology/approach The analysis employs a nonlinear structural vector autoregression (NSVAR) model using quarterly data spanning from 1998Q2 to 2024Q3. Impulse response functions and variance decomposition techniques are applied to assess the dynamic responses of unemployment to both positive and negative monetary policy shocks. Findings The results reveal that both expansionary and contractionary monetary policy shocks have limited, short-lived and statistically insignificant effects on unemployment. However, expansionary shocks tend to have a slightly greater effect in reducing unemployment compared to the rise in unemployment caused by contractionary shocks. Specifically, negative repo rate shocks account for approximately 1.45% of unemployment fluctuations in the initial period, while positive shocks explain around 0.54%. Originality/value By employing a nonlinear framework in a developing country context, this study provides rare empirical evidence on asymmetric monetary transmission in South Africa. It challenges conventional assumptions of symmetric policy effects and underscores the limited role of monetary policy alone in tackling structural unemployment, highlighting the need for complementary reforms.