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The opportunistic approach to monetary policy and financial market conditions

Ndahiriwe Kasai and Ruthira Naraidoo ()

Applied Economics, 2013, vol. 45, issue 18, 2537-2545

Abstract: We test the concept of the opportunistic approach to monetary policy in South Africa post-2000 inflation targeting regime. The article contributes to the current debate on central banks having additional objectives over and above inflation and output by incorporating a measure of financial conditions in the modelling framework. Our findings support the two features of the opportunistic approach. First, we find that the models that include an intermediate target that reflects the recent history of inflation rather than simple inflation target improve the fit of the models. Second, the data supports the view that the South African Reserve Bank (SARB) behaves with some degree of nonresponsiveness when inflation is within the zone of discretion but react aggressively otherwise. Recursive estimates from our preferred model reveal that overall there has been a subdued reaction to inflation, output and financial conditions amidst the increased economic uncertainty of the 2007--2009 financial crisis.

Date: 2013
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DOI: 10.1080/00036846.2012.669464

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