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Inflation in South Africa- An Assessment of Alternative Inflation Models

Johannes Fedderke () and Yang Liu

No 7275, Working Papers from South African Reserve Bank

Abstract: We consider the relative empirical performance of a range of inflation models for South Africa. Model coverage is of Phillips-curve, New Keynesian Phillips curve, monetarist, and structural models of inflation. Our core findings are that the single most robust covariate of inflation is unit labour cost. We further decompose unit labour cost into changes in the nominal wage and real labour productivity. The principal association is a strong positive relationship between inflation and nominal wages, while improvements in real labour productivity report only a relatively weak negative association with inflation. Supply side shocks also consistently report an association with inflation. As to demand-side shocks, the output gap does not return a robust statistical association with inflation. Instead, it is growth in the money supply and government expenditure which return robust and theoretically consistent associations with inflationary pressure.

New Economics Papers: this item is included in nep-mac
Date: 2016-04-04
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Journal Article: Inflation in South Africa: An Assessment of Alternative Inflation Models (2018) Downloads
Working Paper: Inflation in South Africa: An Assessment of Alternative Inflation Models (2016) Downloads
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