Has the SARB Become More Effective Post Inflation Targeting?

Rangan Gupta, Alain Kabundi () and Mampho Modise ()
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Mampho Modise: Department of Economics, University of Pretoria and South African Treasury, Pretoria, South Africa

No 200925, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper assesses the impact of a monetary policy shock on 15 key macroeconomic variables of South Africa, in the pre- and post-inflation targeting periods. For this purpose, we use a Factor-Augmented Vector Autoregressive (FAVAR) model comprising of 107 monthly time series over two equal sub-samples of 1989:01-1997:12 and 2000:01-2008:12. The results, based on impulse response functions, are in line with economic theory and indicate no puzzling effects often observed with small-scale monetary Vector Autoregressive (VAR) models. More importantly, we find that the ability of monetary policy in affecting key macroeconomic variables, including inflation, has increased in the post-targeting period. But, majority of the effects are insignificant, which could, however, also be due to the shorter-lengths of the sub-samples relative to the number of variables used in this study, rather than depicting the inability of monetary policy to significantly affect the South African economy.

Keywords: Monetary Policy Shock; Inflation Targeting; Impulse Response Functions; FAVAR (search for similar items in EconPapers)
JEL-codes: C32 E52 E58 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2009-11
New Economics Papers: this item is included in nep-afr, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Journal Article: Has the SARB become more effective post inflation targeting? (2010)
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