Zone‐Targeting Monetary Policy Preferences And Financial Market Conditions: A Flexible Non‐Linear Policy Reaction Function Of The Sarb Monetary Policy
AbstractBased on a representation of policymakerâs preferences that capture inflation zone targeting behaviors, we estimate a flexible model of the monetary policy reaction function of the South African Reserve Bank (SARB). To address the current debate on the importance of financial asset prices in monetary policy decision making, we augment the analysis to allow for responses to financial market conditions over and above prices and output stabilisation. The main findings are that the monetary authoritiesâ response towards inflation is zone symmetric. Secondly, the monetary authoritiesâ response towards output is asymmetric with increased reaction during business cycle downturns versus upturns. Thirdly, the monetary authoritiesâ pay close attention to financial conditions index. They place the same weight on financial market booms and recessions so that their response is symmetric.
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Bibliographic InfoArticle provided by Economic Society of South Africa in its journal South African Journal of Economics.
Volume (Year): 78 (2010)
Issue (Month): 4 (December)
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Postal: PO Box 929, 0001 Pretoria
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0038-2280
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- Ruthira Naraidoo & Leroi Raputsoane, 2010. "Zone targeting monetary policy preferences and financial market conditions: a flexible nonlinear policy reaction function of the SARB monetary policy," Working Papers 201005, University of Pretoria, Department of Economics.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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