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Real Interest Rate Persistence in South Africa: Evidence and Implications

Sonali Das (), Rangan Gupta (), Patrick Kanda (), Monique Reid, Christian Tipoy () and Mulatu Zerihun ()
Additional contact information
Patrick Kanda: Department of Economics, University of Pretoria
Christian Tipoy: Department of Economics, University of Pretoria

No 201204, Working Papers from University of Pretoria, Department of Economics

Abstract: The real interest rate is a very important variable in the transmission of monetary policy. It features in vast majority of financial and macroeconomic models. Though the theoretical importance of the real interest rate has generated a sizable literature that examines its long-run properties, surprisingly, there does not exist any study that delves into this issue for South Africa. Given this, using quarterly data (1960:Q2-2010:Q4) for South Africa, our paper endeavors to analyze the long-run properties of the EPRR by using tests of unit root, cointegration, fractional integration and structural breaks. In addition, we also analyze whether monetary shocks contribute to fluctuations in the real interest rate based on test of structural breaks of the rate of inflation, as well as, Bayesian change point analysis. Based on the tests conducted, we conclude that the South African EPPR can be best viewed as a very persistent but ultimately mean-reverting process. Also, the persistence in the real interest rate can be tentatively considered as a monetary phenomenon.

Keywords: Real Interest Rate; Monetary Policy; Persistence; Mean Reversion (search for similar items in EconPapers)
JEL-codes: C22 E21 E44 E52 E62 G12 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2012-01
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Journal Article: Real interest rate persistence in South Africa: evidence and implications (2014) Downloads
Working Paper: Real Interest Rate Persistence in South Africa: Evidence and Implications (2012) Downloads
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