The sensitivity of South African inflation expectations to surprises

Monique Reid

No 16/2009, Working Papers from Stellenbosch University, Department of Economics

Abstract: Price stability is widely recognised as the primary goal of modern monetary policy, and the management of private sector inflation expectations has become an essential channel through which this goal is achieved. This evaluation aims to improve the understanding of how the sensitivity of private sector inflation expectations to macroeconomic surprises in South Africa compares internationally, as this provides an indication of the contribution of monetary policy in South Africa to anchoring inflation expectations. If a central bank is credible, the financial markets should react less sensitively to macroeconomics surprises, because they trust the central bank to manage these incidents and achieve the objectives they communicated over the medium to long term. In this paper, the methodology of Gurkaynack, Sack and Swanson (2005a) is adopted in order to measure the sensitivity of South African inflation expectations to surprises. A comparison of South Africa’s results with those of countries in the original studies supports the contention that the SARB (South African Reserve Bank) has encouraged inflation expectations to be relatively insensitive to macroeconomic surprises, and offers support for the inflation targeting framework as a means to help anchor inflation expectations.

Keywords: South Africa; Inflation targeting; Macroeconomic surprises; Sensitivity of inflation expectations (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-afr, nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (19)

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Related works:
Journal Article: THE SENSITIVITY OF SOUTH AFRICAN INFLATION EXPECTATIONS TO SURPRISES (2009)
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