Estimating monetary policy rules for South Africa
AbstractSouth African monetary policy has experienced major shifts, with three broad monetary policy regimes since the 1960s. This paper analyses the conduct of monetary policy, describing the historical record and institutions of monetary policy, and formally modelling extended Taylor rules for interest rate policy formation. Our principal interest is in the second regime (prior to inflation targeting), when the short-term interest rate first became the main monetary policy instrument, with reference to monetary targets and an eclectic set of economic indicators. Policy was opaque in this regime, and has never been studied in the context of rigorous empirical models. Taylor rules, augmented for foreign interest rate influences and interest rate smoothing, and based either on forecast, or actual, inflation and output gap measures, poorly describe the behavior of the discount rate. A satisfactory model includes the deviation of money growth from target in the rule and controls for the extensive financial liberalisation occurring in the period. In practice, the central bank emphasized current inflation, giving a low weight to the output gap. We find weak evidence for structural breaks reflecting competing balance of payments considerations.
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Bibliographic InfoPaper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2001-07.
Date of creation: 2001
Date of revision:
Publication status: Published in Analysis and Economic Policies, Volume 4, Central Bank of Chile, pages 427-475. ISBN # 956-7421-09-9.
Other versions of this item:
- Janine Aron & John Muellbauer, 2002. "Estimating Monetary Policy Rules for South Africa," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 15, pages 427-476 Central Bank of Chile.
- Janine Aron & John Muellbauer, 2001. "Estimating Monetary Policy rules for South Africa," Economics Series Working Papers WPS/2001-07, University of Oxford, Department of Economics.
- Janine Aron & John Muellbauer, 2000. "Estimating Monetary Policy Rules for South Africa," Working Papers Central Bank of Chile 89, Central Bank of Chile.
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