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

Lutho Mbekeni () and Andrew Phiri
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Lutho Mbekeni: Department of Economics, Nelson Mandela University

No 1906, Working Papers from 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.

Keywords: Fisher effect; SARB; Fourier unit root test; Monetary Policy. (search for similar items in EconPapers)
JEL-codes: C12 C13 C22 E52 E58 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2019-09, Revised 2019-09
New Economics Papers: this item is included in nep-mac and nep-mon
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