EconPapers    
Economics at your fingertips  
 

Financial assets, linear and nonlinear policy rules: An in-sample assessment of the reaction function of the South African Reserve Bank

Ndahiriwe Kasai and Ruthira Naraidoo ()

Journal of Economic Studies, 2012, vol. 39, issue 2, 161-177

Abstract: Purpose - The purpose of this paper is to investigate how the South African Reserve Bank (SARB) sets monetary policy rate. Design/methodology/approach - Given the controversial debate on whether central banks should target asset prices for economic stability, the authors analyse whether the SARB policy-makers pay close attention to asset and financial markets in its policy decisions in the context of both linear and nonlinear Taylor type rule models of monetary policy. Findings - The main findings are that the nonlinear Taylor rule provides the best description of in-sample SARB interest rate setting behaviour as the financial crisis unfolds. The SARB policy-makers pay close attention to the financial conditions index when setting interest rates. The SARB's response of monetary policy to inflation is greater during business cycle recessions with not much weight on output and seems to place high importance on inflationary pressures of output during boom periods. The 2007-2009 financial crisis witnesses an overall decreased reaction to inflation, output and financial conditions amidst increased economic uncertainty. Originality/value - This paper introduces a financial condition index into a Taylor monetary policy rule and examines whether nonlinear models can provide additional information over a linear model.

Keywords: Monetary policy; Nonlinearity; Financial Conditions Index; Economic policy; Banks; South Africa (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

Downloads: (external link)
http://www.emeraldinsight.com/10.1108/014435812112 ... RePEc&WT.mc_id=RePEc (text/html)
Access to full text is restricted to subscribers

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:eme:jespps:v:39:y:2012:i:2:p:161-177

Ordering information: This journal article can be ordered from
Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
http://www.emeraldinsight.com/jes.htm

Access Statistics for this article

Journal of Economic Studies is currently edited by Professor Mohsen Bahmani-Oskooee

More articles in Journal of Economic Studies from Emerald Group Publishing
Bibliographic data for series maintained by Virginia Chapman ().

 
Page updated 2020-02-26
Handle: RePEc:eme:jespps:v:39:y:2012:i:2:p:161-177