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Is Neo-Fisherism ‘alive’ in South Africa? A frequency domain causality approach

Andrew Phiri ()

Macroeconomics and Finance in Emerging Market Economies, 2021, vol. 14, issue 2, 142-156

Abstract: There is a new wave of monetary thought popularized in industrialized economies going under the banner of Neo-Fisherism. Proponents of this school of thought assume that there exists reverse causality in the conventional Fisher effect in which interest rates cause movements in expected inflation instead of interest rates being driven by inflation expectations. We examine whether the Neo-Fisherian hypothesis holds for the South African economy as an inflation-targeting emerging economy characterized by moderate inflation and policy rates. Using frequency-domain causality tests on quarterly repo rate and inflation expectations data collected between 2002:q3 and 2019:q2, we find evidence of uni-directional causality from repo rates to inflation expectations over the short- and long-run. Policy implications of these findings are discussed.

Date: 2021
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DOI: 10.1080/17520843.2020.1796732

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