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Changing the inflation target in emerging markets: the reward of reducing risk

Author

Listed:
  • Ekaterina Pirozhkova

    (University of Pretoria and South African Reserve Bank)

  • Nicola Viegi

    (University of Pretoria)

Abstract

This paper analyses the effects of change by the South African Reserve Bank (SARB) in its preferred definition of inflation target in July 2017 from a range to a point target. We estimate the implications of this shift by means of a Bayesian vector autoregression-based counterfactual exercise. Our results show that the inflation target change allowed to reduce prices and inflation expectations without negative effects on real output and employment. This was achieved via the reduction in the South African - US long-term interest rate spread (i.e. by a reduction in risk) and by a subsequent positive effect on asset prices.

Suggested Citation

  • Ekaterina Pirozhkova & Nicola Viegi, 2023. "Changing the inflation target in emerging markets: the reward of reducing risk," Economics Bulletin, AccessEcon, vol. 43(3), pages 1453-1457.
    • Handle: RePEc:ebl:ecbull:eb-23-00337
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    monetary policy transmission; monetary policy communication; inflation target;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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