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Commodity Prices and Policy Stabilisation in South Africa

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  • Byron Botha
  • Eric Schaling

Abstract

In order to account for the effects of commodity exports on the South African business cycle we use a multivariate extension of the Hodrick Prescott (HP) filter that incorporates commodity prices. We find that ignoring commodity prices results in a monetary policy stance that is more dovish than the one implied by our multivariate measure of the business cycle. This may partly explain why inflation breached the inflation target from 2007Q2 to 2009Q4, and overshot the upper bound of the target again by mid-2014. In addition we find that incorporating information about commodity prices implies smaller revisions of the estimated output gap. This in turn, enables a more consistent narrative around economic slack and monetary policy over time.

Suggested Citation

  • Byron Botha & Eric Schaling, 2020. "Commodity Prices and Policy Stabilisation in South Africa," Working Papers 10225, South African Reserve Bank.
    • Handle: RePEc:rbz:wpaper:10225
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    References listed on IDEAS

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    3. Cobus Vermeulen, 2023. "The inherent uncertainties in output gap estimation a South African perspective," Working Papers 11051, South African Reserve Bank.

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