An Assessment of the Effectiveness of Monetary Policy in South Africa

Devan van Wyngaard (), Daniel Francois Meyer () and Jacques de Jongh ()
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Devan van Wyngaard: North West University
Daniel Francois Meyer: North West University
Jacques de Jongh: North West University

Acta Universitatis Danubius. OEconomica, 2018, issue 14(6), 281-295

Abstract: The total economy is affected by inflation which should be effectively controlled to support economic growth. However, in recent years there has been evidence of inefficiencies of inflationary control in South Africa as the country is faced with both structural and cost-push inflation in a low growth economy. The objective of this study was to investigate whether these inflation types are effectively controlled through the utilisation of interest rates and money supply by the South African Reserve Bank (SARB). Secondary data from the SARB were collected for 69 quarters from 2000 Q1 to 2017 Q1. An autoregressive distributive lag model (ARDL) was used to analyse the data for longrun co-integration while an error correction model (ECM) tested for short-run relationships. Variables included the consumer price index (CPI), money supply, interest rate (repo rate), government expenditure as well as trade openness. The results indicated that both long- and short-run relationships exist between the variables. The study revealed that structural and cost-push inflation exists in South Africa, making the current methods of monetary policy implementation less effective in controlling inflation as well as having an impact on economic growth.

Keywords: ARDL; cost-push inflation; interest rates; monetary tools; South Africa (search for similar items in EconPapers)
Date: 2018
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