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Is South Africa's inflation target too persistent for monetary policy conduct?

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Listed:
  • Faul, Joseph
  • Khumalo, Bridgette
  • Pashe, Mpho
  • Khuzwayo, Miranda
  • Banda, Kamogelo
  • Jali, Senzo
  • Myeni, Bathandekile
  • Pule, Retlaodirela
  • Mosito, Boitshoko
  • Jack, Lona-u-Thando
  • Phiri, Andrew

Abstract

Can the South African Reserve Bank’s (SARB) substantially control inflation within their set target of 3-6 percent? We sought to investigate this phenomenon by examining multiple threshold effects in the persistence levels of quarterly aggregated inflation data collected between 2003 and 2014. To this end, we employ the three-regime threshold autoregressive (TAR) model of Hansen (2000). We favour this approach over other conventional linear econometric models as it permits us to test for varying persistency within the autoregressive (AR) components of the inflation process. Our empirical explorations reveal that the SARB’s set target does indeed lie within a range in which inflation is found to be most persistent. Overall and more importantly, our results suggest that the SARB should either consider revising their set inflation target by redefining the inflation target range to accommodate higher inflation rates or the Reserve Bank should consider abandoning the inflation targeting regime altogether.

Suggested Citation

  • Faul, Joseph & Khumalo, Bridgette & Pashe, Mpho & Khuzwayo, Miranda & Banda, Kamogelo & Jali, Senzo & Myeni, Bathandekile & Pule, Retlaodirela & Mosito, Boitshoko & Jack, Lona-u-Thando & Phiri, Andrew, 2014. "Is South Africa's inflation target too persistent for monetary policy conduct?," MPRA Paper 58233, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58233
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    References listed on IDEAS

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    Cited by:

    1. Andrew Phiri, 2020. "Structural changes in exchange rate-stock returns dynamics in South Africa: examining the role of crisis and new trading platform," Economic Change and Restructuring, Springer, vol. 53(1), pages 171-193, February.
    2. Rangan Gupta & Charl Jooste & Omid Ranjbar, 2017. "South Africa’s inflation persistence: a quantile regression framework," Economic Change and Restructuring, Springer, vol. 50(4), pages 367-386, November.
    3. Rangan Gupta & Charl Jooste & Omid Ranjbar, 2015. "The Changing Dynamics of South Africa's Inflation Persistence: Evidence from a Quantile Regression Framework," Working Papers 201563, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Inflation persistence; TAR Models; Monetary Policy; South African Reserve Bank (SARB); Inflation Targeting; Developing Economy.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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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