Is the monetary policy behaviour of the South African Reserve Bank nonlinear?

Abdul-Aziz Iddrisu and Imhotep Paul Alagidede

Global Business and Economics Review, 2021, vol. 24, issue 2, 193-209

Abstract: In spite of the apparent asymmetry in monetary policy behaviour, monetary policy rule exposition continues to be carried out in the linear context. The burgeoning literature on nonlinear monetary policy rules fail to capture nonlinearity appropriately, putting the precision and accuracy of such estimates in doubt for policy purposes. With the aid of sample splitting and threshold estimation technique, the current study considers the monetary policy behaviour and responses of the South African Reserve Bank (SARB) in the Taylor rule context. The chosen technique delivers a threshold estimate after 5,000 bootstrap replications with confidence intervals based on asymptotic theory devoid of nuisance parameters. The study finds nonlinear Taylor rule to adequately capture the policy behaviour of the SARB with threshold inflation of 5.2% and asymmetric responses below and above this threshold.

Keywords: monetary policy; Taylor rule; sample splitting; inflation targeting; threshold estimation. (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ids:gbusec:v:24:y:2021:i:2:p:193-209

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