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Dynamic Time Inconsistency And The South African Reserve Bank

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  • Rangan Gupta
  • Josine Uwilingiye

Abstract

This paper derives the econometric restrictions imposed by the Barro and Gordon model of dynamic time inconsistency on a bivariate time-series model of consumer price index (CPI) inflation and real gross domestic product (GDP), and tests these restrictions based on quarterly data for South Africa covering the period of January 1960-April 1999, "i.e." for the pre-inflation targeting period. The results show that the data are consistent with the short- and long-run implications of the theory of time-consistent monetary policy. Moreover, when the model is used to forecast one-step-ahead inflation over the period of January 2001-February 2008, "i.e." the period covering the starting point of the inflation-targeting regime until date, we, on average, obtain lower rates of inflation. The result tends to suggest that the South African Reserve Bank perhaps needs to manage the inflation-targeting framework better than it has done so far. Copyright (c) 2010 The Authors. Journal compilation (c) 2010 Economic Society of South Africa.

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Bibliographic Info

Article provided by Economic Society of South Africa in its journal South African Journal of Economics.

Volume (Year): 78 (2010)
Issue (Month): 1 (03)
Pages: 76-88

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Handle: RePEc:bla:sajeco:v:78:y:2010:i:1:p:76-88

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Cited by:
  1. Kafayat Amusa & Rangan Gupta & Shaakira Karolia & Beatrice D. Simo Kengne, 2010. "The Long-Run Impact of Inflation in South Africa," Working Papers 201029, University of Pretoria, Department of Economics.
  2. Eliphas Ndou & Nombulelo Gumata & Mthuli Ncube & Eric Olson, 2013. "Working Paper 189 - An Empirical Investigation of the Taylor Curve in South Africa," Working Paper Series 992, African Development Bank.

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