Monetary policy shocks, output and prices in South Africa: a test of policy irrelevance proposition

Taiwo Ajilore and Sylvanus Ikhide ()

Journal of Developing Areas, 2013, vol. 47, issue 2, 363-386

Abstract: The study tests the policy irrelevance proposition in the inflation targeting monetary policy environment in South Africa, as well as in the context of a dichotomy between anticipated and unanticipated policy shocks. Findings from estimates of monetary policy reaction function confirmed that an open economy implicit Taylor rule characterised the monetary policy instrument in South Africa, providing evidence that suggests that the monetary policy has, indeed, been conducted systematically on the basis of information from past inflation and the output gap. While aggregates of evidence invalidates rational expectations’ PIP proposition in South Africa, doubts exists about the capacity of inflation targeting monetary policy in curbing inflationary pressures in the economy. For policy, this study supports calls for supplementing the inflation targeting framework with targets for other real variables, such as output and employment.

Keywords: Rational Expectations; Inflation Targeting; South Africa (search for similar items in EconPapers)
JEL-codes: C62 F15 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.47:year:2013:issue2:pp:363-386

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