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

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

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Inflation persistence; TAR Models; Monetary Policy; South African Reserve Bank (SARB); Inflation Targeting; Developing Economy. (search for similar items in EconPapers)
JEL-codes: C22 E30 E31 E52 E58 (search for similar items in EconPapers)
Date: 2014-09-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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