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Can the South African Reserve Bank (SARB) protect the purchasing power of citizens? A new look at Fisher’s hypothesis

Author

Listed:
  • Lutho Mbekeni

    (Department of Economics, Nelson Mandela University)

  • Andrew Phiri

    (Department of Economics, Nelson Mandela University)

Abstract

In this paper, we evaluate whether the South African Reserve Bank (SARB) has been successful at fulfilling it’s mandate of protecting the purchasing power of the country’s citizens. To this end, we use monthly data covering the post-inflation targeting era of 2002:01 to 2018:04 to re-examine Fisher’s hypothesis for the South African economy by testing for stationarity in real interest rates. Our study makes three noteworthy empirical contributions. Firstly, we use three measures of inflation in computing the real interest rate variable. Secondly, our inflation expectations variables are constructed in alignment with the inflation forecast horizons of 12 to 24 months as practiced by the SARB. Thirdly, we rely on the more powerful flexible Fourier unit root test in testing for integration properties of the real exchange rate. All-in-all, our findings highlight the Reserve Bank’s struggles in protecting the purchasing power of citizen’s for periods subsequent to the global financial crisis but not for periods before the crisis. Policy recommendations are also provided.

Suggested Citation

  • Lutho Mbekeni & Andrew Phiri, 2019. "Can the South African Reserve Bank (SARB) protect the purchasing power of citizens? A new look at Fisher’s hypothesis," Working Papers 1906, Department of Economics, Nelson Mandela University, revised Sep 2019.
    • Handle: RePEc:mnd:wpaper:1906
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fisher effect; SARB; Fourier unit root test; Monetary Policy.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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