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Change of the SARBs preferred inflation target in 2017 the conditional forecast story

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  • Ekaterina Pirozhkova
  • Nicola Viegi

Abstract

This note analyses the effects of the South African Reserve Banks Monetary Policy Committee communicating a change in its preferred inflation target in July 2017. Prior to 2017Q3, the MPC indicated its inflation targeting range to be 36%. From 2017Q3 onward, the MPC shifted to emphasising the midpoint of the range, 4.5%, as its preferred inflation target. We estimate the implications of this shift by means of a Bayesian vector autoregression-based counterfactual exercise. Our results show that this change in the preferred inflation target allowed a reduction in prices and inflation expectations without negative effects on real output and employment. This was achieved via the reduction in the South AfricanUnited States long-term interest rate spread (i.e. by a reduction in risk) and by a subsequent positive effect on asset prices.

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  • Ekaterina Pirozhkova & Nicola Viegi, 2024. "Change of the SARBs preferred inflation target in 2017 the conditional forecast story," Occasional Bulletin of Economic Notes 11051, South African Reserve Bank.
    • Handle: RePEc:rbz:oboens:11051
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    File URL: https://www.resbank.co.za/content/dam/sarb/publications/occasional-bulletin-of-economic-notes/2024/change-of-the-sarbs-preferred-inflation-target-in-2017-the-conditional-forecast-story-april-2024-01.pdf
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