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Review of Monetary Policy in South Africa since 1994

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  • Janine Aron
  • John Muellbauer

Abstract

This paper reviews the design and performance of monetary policy in South Africa (SA) during 1994-2004. Quantitative indexes of transparency reveal a strong rise in the transparency and accountability of monetary policy between 1994 and 2004. Inflation and interest rate expectations data and forward interest rate data are used to demonstrate the increased credibility and reasonable predictability of monetary policy since adopting inflation targeting in 2000. The SA Reserve Bank.s view on monetary policy transmission channels is discussed, and its recent forecasting performance is evaluated. We find that monetary policy decisions taken in response to external and domestic shocks under inflation targeting have significantly improved relative to the preceding framework, though data quality has been a constraint. Further, inflation targeting has not disadvantaged potential investment in terms of the level of tax-adjusted real interest rates. Finally, the important role for complementary policies to support monetary policy is motivated.

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Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2006-07.

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Date of creation: 2006
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Handle: RePEc:csa:wpaper:2006-07

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References

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  1. Obstfeld, Maurice, 1996. "Models of Currency Crises with Self-fulfilling Features," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1315, C.E.P.R. Discussion Papers.
  2. Janine Aron & John Muellbauer, 2000. "Estimating Monetary Policy Rules for South Africa," Working Papers Central Bank of Chile, Central Bank of Chile 89, Central Bank of Chile.
  3. Janine Aron & John Muellbauer, 2004. "Construction of CPIX Data for Forecasting and Modelling in South Africa," Economics Series Working Papers, University of Oxford, Department of Economics WPS/2004-09, University of Oxford, Department of Economics.
  4. Janine Aron & John Muellbauer, 2000. "Personal and Corporate Saving in South Africa," World Bank Economic Review, World Bank Group, World Bank Group, vol. 14(3), pages 509-544, September.
  5. Jonathan McCarthy, 2000. "Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies," Staff Reports, Federal Reserve Bank of New York 111, Federal Reserve Bank of New York.
  6. Janine Aron & John Muellbauer, 2002. "Interest Rate Effects on Output: Evidence from a GDP Forecasting Model for South Africa," IMF Staff Papers, Palgrave Macmillan, Palgrave Macmillan, vol. 49(Special i), pages 185-213.
  7. Janine Aron & John Muellbauer, 2005. "Monetary Policy, Macro-stability and Growth," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 6(4), pages 123-147, October.
  8. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
  9. Janine Aron & Ibrahim Elbadawi, 1999. "Reflections on the South African rand crisis of 1996 and its consequences," CSAE Working Paper Series, Centre for the Study of African Economies, University of Oxford 1999-13, Centre for the Study of African Economies, University of Oxford.
  10. Janine Aron & John Muellbauer, 2006. "Housing Wealth, Credit Conditions and Consumption," Economics Series Working Papers, University of Oxford, Department of Economics WPS/2006-08, University of Oxford, Department of Economics.
  11. Stephen Morris & Hyun Song Shin, 1999. "Coordination Risk and the Price of Debt," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1241, Cowles Foundation for Research in Economics, Yale University.
  12. Janine Aron & John Muellbauer & Benjamin W. Smit, 2004. "A Structural Model of the Inflation Process in South Africa," Economics Series Working Papers, University of Oxford, Department of Economics WPS/2004-08, University of Oxford, Department of Economics.
  13. Charles Goodhart, 2005. "The Interest Rate Conditioning Assumption," FMG Discussion Papers, Financial Markets Group dp547, Financial Markets Group.
  14. Eijffinger, Sylvester C W & Geraats, Petra M, 2002. "How Transparent are Central Banks?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3188, C.E.P.R. Discussion Papers.
  15. Maclennan, Duncan & Muellbauer, John & Stephens, Mark, 1999. "Asymmetries in Housing and Financial Market Institutions and EMU," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2062, C.E.P.R. Discussion Papers.
  16. Richard Clarida & Mark Gertler, 1996. "How the Bundesbank Conducts Monetary Policy," NBER Working Papers 5581, National Bureau of Economic Research, Inc.
  17. Stephen G. Cecchetti, 1999. "Legal Structure, Financial Structure, and the Monetary Policy Transmission Mechanism," NBER Working Papers 7151, National Bureau of Economic Research, Inc.
  18. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(483), pages 532-565, November.
  19. Janine Aron & John Muellbauer, 2000. "Financial Liberalization, Consumption and Debt in South Africa," Economics Series Working Papers, University of Oxford, Department of Economics WPS/2000-22, University of Oxford, Department of Economics.
  20. Muellbauer, John & Murphy, Janine Aron & Ant & Aron, Janine & Murphy, Anthony, 2007. "Housing Wealth, Credit Conditions and Consumption," ERES, European Real Estate Society (ERES) eres2007_257, European Real Estate Society (ERES).
  21. Martin Grandes & Marcel Peter & Nicolas Pinaud, 2003. "The Currency Premium and Local-Currency Denominated Debt Costs in South Africa," OECD Development Centre Working Papers, OECD Publishing 230, OECD Publishing.
  22. Bean, Charles & Larsen, Jens D. J. & Nikolov, Kalin, 2002. "Financial frictions and the monetary transmission mechanism: theory, evidence and policy implications," Working Paper Series, European Central Bank 0113, European Central Bank.
  23. V. Vance Roley & Gordon H. Sellon, Jr., 1995. "Monetary policy actions and long-term interest rates," Economic Review, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-89.
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Citations

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Cited by:
  1. Malikane, Christopher & Mokoka, Tshepo, 2012. "Monetary policy credibility: A Phillips curve view," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 52(3), pages 266-271.
  2. Fredj Jawadi & Sushanta K. Mallick & Ricardo M. Sousa, 2011. "Monetary Policy Rules in the BRICS: How Important is Nonlinearity?," NIPE Working Papers, NIPE - Universidade do Minho 18/2011, NIPE - Universidade do Minho.
  3. Isaacs, Gilad, 2014. "The myth of “neutrality” and the rhetoric of “stability”: macroeconomic policy in democratic South Africa," MPRA Paper 54426, University Library of Munich, Germany.
  4. James Heintz & Léonce Ndikumana, 2010. "Is There a Case for Formal Inflation Targeting in Sub-Saharan Africa?," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp218, Political Economy Research Institute, University of Massachusetts at Amherst.
  5. Janine Aron & John Muellbauer, 2008. "Monetary Policy and Inflation Modeling in a more Open Economy in South Africa," CSAE Working Paper Series, Centre for the Study of African Economies, University of Oxford 2008-28, Centre for the Study of African Economies, University of Oxford.
  6. James Heintz & Léonce Ndikumana, 2010. "Working Paper 108 - Is there a Case for Formal Inflation Targeting in Sub-Saharan Africa?," Working Paper Series, African Development Bank 245, African Development Bank.
  7. Janine Aron & John Muellbauer, 2009. "Some Issues in Modeling and Forecasting Inflation in South Africa," CSAE Working Paper Series, Centre for the Study of African Economies, University of Oxford 2009-01, Centre for the Study of African Economies, University of Oxford.
  8. Beatrice D. Simo - Kengne & Mehmet Balcilar & Rangan Gupta & Monique Reid & Goodness C. Aye, 2012. "Is the relationship between monetary policy and house prices asymmetric in South Africa? Evidence from a Markov-Switching Vector Autoregressive mode," Working Papers 14/2012, Stellenbosch University, Department of Economics.
  9. Mallick, Sushanta K. & Sousa, Ricardo M., 2012. "Real Effects Of Monetary Policy In Large Emerging Economies," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 16(S2), pages 190-212, September.
  10. Baaziz, Yosra & Labidi, Moez & Lahiani, Amine, 2013. "Does the South African Reserve Bank follow a nonlinear interest rate reaction function?," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 272-282.

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