Abstract
Purpose of the study: This study revisits the management and interaction aspects between fiscal and monetary policies in South Africa using a Bayesian vector autoregressive model (BVA). Design/methodology/approach: Monthly data on the inflation rate, interest rate, money supply, tax revenue, government spending and government debt for the period 2009 - 2019 were sourced from the South African Reserve Bank. Findings: The impulse response analysis shows that positive shocks to money supply prompt monetary authority to raise the economy's interest rate, which increases the bank rate. Inflation does not respond to shock to government spending and could drive inflation in the South African economy from the supply side rather than the demand side. Tax revenue and money supply shocks are significant sources of variation in inflation. These variables account for 7 and 18 percent variation in government spending. Recommendations/value: The study concludes that monetary authority must employ supply-side measures to manage the price level.