Why Higher Trend Inflation Makes Monetary Policy More Costly in South Africa

Hylton Hollander () and Clinton Joel ()
Additional contact information
Hylton Hollander: University of Cape Town
Clinton Joel: National Treasury

No 275, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: Most inflation-targeting central banks target a small but positive underlying rate of inflation, often called trend inflation1. Yet its appropriate level remains uncertain. The extended deliberation in South Africa to move from a 3 - 6% target band to a 3% point target (with a ±1% tolerance band) illustrates this tension. In our working paper (Trend Inflation and the Costs of Price Dispersion in a Fiscal DSGE Model), we examine the role of trend inflation in an economy and argue that, all else equal, lower trend inflation is better for the economy.

Keywords: Trend inflation; monetary policy; price dispersion; Phillips curve; sacrifice ratio (search for similar items in EconPapers)
JEL-codes: E30 E52 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2026-01
New Economics Papers: this item is included in nep-dge and nep-mon
References: Add references at CitEc
Citations:

Published in ERSA Working Paper Series, January 2026, pages 8

Downloads: (external link)
https://ersawps.org/index.php/working-paper-series/article/view/275/177 First version, 2026 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rza:ersawp:275

Access Statistics for this paper

More papers in ERSA Working Paper Series from Economic Research Southern Africa
Bibliographic data for series maintained by Maggi Sigg ().