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Labour Market and Monetary Policy in South Africa

Vincent Dadam and Nicola Viegi
Authors registered in the RePEc Author Service: Nicola Viegi ()

No 551, Working Papers from Economic Research Southern Africa

Abstract: This paper analyses the in‡fluence of the South African labour market on the conduct of monetary policy. Because of the weak response of wages to changes in employment, the South African Reserve Bank is confronted by an unfavourable short run unemployment-in‡flation trade off that complicates the implementation of the in‡flation targeting framework. First we provide some reduced form evidence by estimating a form of the traditional wage Phillips curve, showing the weak relationship between wage dynamics and unemployment in South Africa. We then con…rm this result by presenting an estimation of a structural model of the South African economy and give a quantitative assessment of the constraint imposed by the labour market on monetary policy. Finally we interpret these results in a strategic framework, analysing the role that in‡flation targeting might play in either improving coordination, or worsening the interaction between trade unions and Central Bank objectives.

Keywords: Labour market; Montetary Policy; South Africa (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mon
Date: 2015
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Working Paper: Labour Market and Monetary Policy in South Africa (2015) Downloads
Working Paper: Labour Market and Monetary Policy in South Africa (2015) Downloads
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