The African Institute of Financial Markets and Risk Management (AIFMRM) at the University of Cape Town (UCT) secured a five-year grant from the Volkswagen Foundation for research into international capital flows.
The project forms part of an international collaboration with top academics from universities in Germany, the United States, China and Japan. Total funding for the initiative amounts to R10.7 million (€770 000) with UCT receiving R1.5 million (€110 000).
“We are delighted by this sizeable sponsorship from the Volkswagen Foundation for this very significant global study,” said Professor David Taylor, director of the African Institute of Financial Markets and Risk Management (AIFMRM).
Dr Co-Pierre Georg, senior lecturer in the Faculty of Commerce at UCT and AIFMRM is one of the project’s co-principal investigators, as well as research coordinator.
“Sponsorships like these are very important, without them we couldn’t study many pressing questions in the financial world,” Georg said.
He said what set their proposal apart was its focus on emerging economies.
“Very little research on developing countries is done outside the traditional development economic focus,” he said.
According to Georg the significance of this project lies in the international collaboration with leading economists from universities like the Goethe University Frankfurt and Research Center SAFE in Germany; The Leonard N. Stern School of Business at New York University in the USA; The Wang Yanan Institute for Studies in Economics, Xiamen University, China and Waseda University, Japan.
The fund will enable UCT to sponsor two PhD students for three years, provide travel expenses, as well as computer equipment.
The rest of the international team will use the funds to undertake a comprehensive study on how new monetary policy tools like quantitative easing (QE), which industrialized economies introduced following the 2007-2009 global financial crisis, affect South Africa and other emerging markets.
The study in particular looks at how much of the current economic recovery can be attributed to monetary policy intervention and which tools were the most effective. The team will look at QE from a finance perspective, so the impact of these policy actions on financial market prices, as well as on financial institutions’ risk and credit supply.
The study will also explore whether there are spillover effects to financial institutions and markets in emerging countries, like India, China and other countries in Africa. The researchers also plan to look into the effects on central banks if they were to reverse their currently extremely lax monetary policy stance and how this would affect financial stability in emerging markets.
“These questions are among the big global challenges in finance today. Timely research into the massive international capital flows to emerging countries triggered by lax monetary policy in industrialized countries is one way to prepare appropriate policy responses for when the tide is turning,” Georg said.