Zone targeting monetary policy preferences and financial market conditions: a flexible nonlinear policy reaction function of the SARB monetary policy

Ruthira Naraidoo and Leroi Raputsoane

No 201005, Working Papers from University of Pretoria, Department of Economics

Abstract: Based on a representation of policymaker’s preferences that capture inflation zone targeting behaviors, we estimate a flexible model of the monetary policy reaction function of the South African Reserve Bank (SARB). To address the current debate on the importance of financial asset prices in monetary policy decision making, we augment the analysis to allow for responses to financial market conditions over and above prices and output stabilisation. The main findings are that the monetary authorities’ response towards inflation is zone symmetric. Secondly, the monetary authorities’ response towards output is asymmetric with increased reaction during business cycle downturns versus upturns. Thirdly, the monetary authorities’ pay close attention to financial conditions index. They place the same weight on financial market booms and recessions so that their response is symmetric.

Keywords: Zones; asymmetries; financial conditions index (search for similar items in EconPapers)
JEL-codes: C51 E12 E58 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (20)

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Related works:
Journal Article: ZONE‐TARGETING MONETARY POLICY PREFERENCES AND FINANCIAL MARKET CONDITIONS: A FLEXIBLE NON‐LINEAR POLICY REACTION FUNCTION OF THE SARB MONETARY POLICY (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201005

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