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Real Interest Rate Persistence in South Africa: Evidence and Implications

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

No 17/2012, Working Papers from Stellenbosch University, 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 ex post real rate (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)
Date: 2012
New Economics Papers: this item is included in nep-afr
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Related works:
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)
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