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Estimating a Phillips Curve for South Africa: A Bounded Random-Walk Approach

Author

Listed:
  • Alain Kabundi

    (World Bank)

  • Eric Schaling

    (University of the Witwatersrand and VU University Amsterdam)

  • Modeste Some

    (International Monetary Fund)

Abstract

In this paper we estimate a Phillips curve for South Africa using a bounded random-walk model. Central bank credibility, the slope of the Phillips curve, the natural rate of unemployment, and the central bank's inflation target band are time varying. We find that the slope of the Phillips curve has flattened since the mid-2000s-particularly after the Great Recession-which is in line with the findings in most advanced countries. Our results do not lend support to the hypothesis that the ability of the South African Reserve Bank to hit its inflation target has decreased. With respect to the faith in the IT regime as measured by the degree to the extent of which inflation expectations are anchored to the target, our results indicate that inflation persistence has increased from 1994 to 2001, remained constant from 2001 to 2008, and eventually increased around 2008. This pattern is different from that of advanced countries where expectations have become better anchored relatively early in the IT regime. Moreover, we find that the increased stability of inflation expectations after 2008-which coincides with the Great Financial Crisis-is not only a result of good policy but also of "good luck".

Suggested Citation

  • Alain Kabundi & Eric Schaling & Modeste Some, 2019. "Estimating a Phillips Curve for South Africa: A Bounded Random-Walk Approach," International Journal of Central Banking, International Journal of Central Banking, vol. 15(2), pages 75-100, June.
    • Handle: RePEc:ijc:ijcjou:y:2019:q:2:a:3
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    Citations

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    Cited by:

    1. Kabundi, Alain & Poon, Aubrey & Wu, Ping, 2023. "A time-varying Phillips curve with global factors: Are global factors important?," Economic Modelling, Elsevier, vol. 126(C).
    2. Merrino, Serena, 2022. "Monetary policy and wage inequality in South Africa," Emerging Markets Review, Elsevier, vol. 53(C).
    3. Liu, Zhen & Ngo, Thanh Quang & Saydaliev, Hayot Berk & He, Huiyuan & Ali, Sajid, 2022. "How do trade openness, public expenditure and institutional performance affect unemployment in OIC countries? Evidence from the DCCE approach," Economic Systems, Elsevier, vol. 46(4).
    4. Dladla, Pholile & Malikane, Christopher, 2022. "Inflation dynamics in an emerging market: The case of South Africa," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 262-271.

    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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