The contribution of this thesis is to build a small macro-econometric model of the
Namibian economy, which demonstrates that there is significant statistical support for
the hypothesis that there is a contemporaneous relationship between real wage,
productivity, unemployment and interest rates in Namibia. This phenomenon has not
yet been exploited using macro-econometric modelling, and thus, represents a
significant contribution to modelling literature in Namibia. The determination of the
sources of unemployment also receives special attention given that high unemployment
is a chronic problem in Namibia. All models specified and estimated in the study use
the SVAR methodology for the period 1980 to 2013. The study develops a small
macro-econometric model using three modular experiments, which include, a basic
model, models that separately append demand and exchange rate channels variables to
the basic model, and the specification of a small macro-econometric model. The
ultimate aim is to find out if monetary policy plays a role in influencing labour market
and nominal variables. The hypothesis that the basic real wage, productivity,
unemployment rate and interest rate system can be estimated simultaneously is
validated. Further, demand and exchange rate channels variables are found to have
important additional information, which explains the monetary transmission process,
and that shocks to labour market variables affect monetary policy in Namibia. The
results also show that the demand channel (import prices and bank credit to the private
sector) and the exchange rate channel (nominal exchange rate) variables have important
additional information, which affects monetary transmission process in Namibia, which
justifies their inclusion in the small macro-econometric model. In addition, shocks to
the import price and exchange rate in the macro-econometric model significantly affect
labour market variables. However, shocks to bank credit only partially perform as
expected, implying that its results need to be considered cautiously. The study further
finds that tight monetary policy shocks significantly affect real and nominal variables
in Namibia. The results also show that shocks to all variables in the unemployment
model significantly affect unemployment, suggesting that the hysteresis assumption is
corroborated. This implies that long run aggregate demand is non-neutral in Namibia.