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The structuralist theory of imported inflation: an application to South Africa

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  • Kevin Nell

Abstract

This study emphasizes the importance of identifying the origin of inflation in the present context of inflation targeting by many emerging market and transition economies. The analysis shows, based on South African data, how structural (supply) and demand inflation can be distinguished. The results indicate that South Africa's inflation experience between 1973q1 and 1998q4 is characterized by two monetary regimes. During the first regime (1973q1-1984q4) the long-run cause of inflation is demand-pull. The second regime (1987q1-1998q4) represents major changes to structural ('imported') and cost-push inflation. The two-year period 1985-1986 signifies structural change from the first to the second regime. Moreover, the results in the second regime remain robust when the inflation model is subjected to 'new' out-of-sample data until 2001q2. Evidence of structural ('imported') inflation in the second regime suggests that inflation should not entirely be squeezed out of the system nor should it necessarily be kept at the lowest possible level, because some inflation may be regarded as the natural by-product of the growth and development process. South Africa's inflation experience points to several lessons for existing (and potential) emerging market and transition economies with some form of inflation targeting.

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  • Kevin Nell, 2004. "The structuralist theory of imported inflation: an application to South Africa," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1431-1444.
    • Handle: RePEc:taf:applec:v:36:y:2004:i:13:p:1431-1444
    DOI: 10.1080/0003684042000204467
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    Cited by:

    1. Muellbauer, John & Sinclair, Peter & Aron, Janine & Farrell, Greg, 2010. "Exchange Rate Pass-through and Monetary Policy in South Africa," CEPR Discussion Papers 8153, C.E.P.R. Discussion Papers.
    2. Janine Aron & Greg Farrell & John Muellbauer & Peter Sinclair, 2014. "Exchange Rate Pass-through to Import Prices, and Monetary Policy in South Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 50(1), pages 144-164, January.
    3. Loening, Josef L. & Durevall, Dick & Ayalew Birru, Yohannes, 2009. "Inflation Dynamics and Food Prices in an Agricultural Economy: The Case of Ethiopia," Working Papers in Economics 347, University of Gothenburg, Department of Economics.
    4. Marwan Mohamed Abu Orabi, 2020. "The Impact of Monetary Inflation on Investment Decisions in Jordanian Industrial Companies," Modern Applied Science, Canadian Center of Science and Education, vol. 14(7), pages 133-133, July.
    5. Léonce Ndikumana & Janvier D. Nkurunziza & Miguel Eduardo Sánchez Martín & Samuel Mulugeta & Zerihun Getachew Kelbore, 2023. "Monetary, fiscal, and structural drivers of inflation in Ethiopia: new empirical evidence from time series analysis," Review of Development Economics, Wiley Blackwell, vol. 27(2), pages 924-962, May.
    6. James Heintz & Léonce Ndikumana, 2010. "Is There a Case for Formal Inflation Targeting in Sub-Saharan Africa?," Working Papers wp218, Political Economy Research Institute, University of Massachusetts at Amherst.
    7. Durevall, Dick & Loening, Josef L. & Ayalew Birru, Yohannes, 2013. "Inflation dynamics and food prices in Ethiopia," Journal of Development Economics, Elsevier, vol. 104(C), pages 89-106.
    8. Kevin S. Nell, 2006. "Structural Change And Nonlinearities In A Phillips Curve Model For South Africa," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 600-617, October.
    9. Nell, Kevin, 2023. "Inflation and growth in developing economies: A tribute to Professor Thirlwall," MPRA Paper 118757, University Library of Munich, Germany, revised 01 Sep 2023.
    10. Ndikumana,Léonce & Nkurunziza,Janvier D. & Sanchez Martin,Miguel Eduardo & Mulugeta,Samuel & Getachew Kelbore,Zerihun, 2021. "Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia : New Empirical Evidence from TimeSeries Analysis," Policy Research Working Paper Series 9881, The World Bank.
    11. James Heintz & Léonce Ndikumana, 2010. "Working Paper 108 - Is there a Case for Formal Inflation Targeting in Sub-Saharan Africa?," Working Paper Series 245, African Development Bank.
    12. World Bank, 2011. "South Africa Economic Update, November 2011," World Bank Publications - Reports 26854, The World Bank Group.

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