Estimating the Inflation Threshold for South Africa

Temitope Leshoro ()

Studies in Economics and Econometrics, 2012, vol. 36, issue 2, 53-66

Abstract: How detrimental is inflation to economic growth in South Africa? At what level? Motivated by the adoption of inflation targeting in many countries, the author of this paper sets out to empirically determine the threshold level of inflation in South Africa. Quarterly time-series data spanning the period 1980:Q2 to 2010:Q3 was adopted for this study. The threshold regression model developed by Khan and Senhadji (2001) was used in this study. The econometric technique that was used is the ordinary least squares (OLS) model, which was re-estimated using the two-stage least squares instrumental variable (2SLS-IV) to check for robustness. The results show that the inflation threshold level occurs at 4%. At inflation levels below and up to 4%, there is a positive but insignificant relationship between inflation and growth. The relationship becomes negative and significant when the inflation rate is above 4%. The tests of robustness support these findings.

Date: 2012
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DOI: 10.1080/10800379.2012.12097238

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