Output Growth and Monetary Policy Interaction in a Common Monetary Area: Forecasting with VEC Models in Namibia, Lesotho, South Africa and Swaziland, 1981-2004

In this study, we empirically attempt to investigate output growth forecasts as a result of dynamic interplay between money supplies and output growths of Southern African Common Monetary Area (SACMA) countries using Vector Error Correction Models (VECM). In general, the results show that the forecasts for output growths in SACMA countries are quite similar to the actual values. Generally, the money supply changes have had a positive effect on output growths in all these SACMA countries. This may suggest that symmetric monetary shocks dominate in SACMA economies, which is a good indicator for an optimal currency area that would foster development in the region.