Forecasting Monetary Rules in South Africa

Ruthira Naraidoo and Ivan Paya ()

No 201007, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper is the ?rst one to analyze the ability of linear and nonlinear monetary policy rule specifications as well as nonparametric and semiparametric models in forecasting the nominal interest rate setting that describes the South African Reserve Bank (SARB) policy decisions. We augment the traditional Taylor rule with indicators of asset prices in order to account for potential financial stability targets implicitly considered by the SARB. Using an in-sample period of 1986:01 to 2004:12, we compare the out-of-sample forecasting ability of the models over the period 2005:01 to 2008:12. Our results indicate that the semiparametric models perform particularly well relative to the Taylor rule models currently dominating the monetary policy literature, and that nonlinear Taylor rules improve their performance under the new monetary regime.

Keywords: Monetary policy; Taylor rules; nonlinearity; nonparametric; semiparametric; forecasting (search for similar items in EconPapers)
JEL-codes: C14 C51 C52 C53 E52 E58 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2010-03
New Economics Papers: this item is included in nep-afr, nep-cba, nep-for and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201007

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