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Monetary Transmission and Policy Rules in South Africa

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  • Janine Aron

    (University of Oxford)

Abstract

South African monetary policy in the last 30 years has experienced major regime shifts. This paper finds that Taylor rules, augmented for foreign interest rate influences, and based either on forecast, or actual, inflation and output gap measures, poorly describe the behaviour of the discount rate in the relevant sub-periods. Alternative descriptions of central bank behaviour are modelled. Forecasting output, however, we find strong real and nominal interest rate effects over 30 years, though subject to a regime shift. Forecasting inflation one year ahead, it appears that monetary policy has its effect mainly via the exchange rate and the output gap, with little evidence for an influence of money supply variations. In the short-run, higher interest rates raise inflation.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1627.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1627

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  1. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  2. Richard H. Clarida & Mark Gertler, 1997. "How the Bundesbank Conducts Monetary Policy," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 363-412 National Bureau of Economic Research, Inc.
  3. Oriana Bandiera & Gerard Caprio Jr. & Patrick Honohan & Fabio Schiantarelli, 1998. "Does Financial Reform Raise or Reduce Savings?," Boston College Working Papers in Economics 413, Boston College Department of Economics.
  4. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  5. Muellbauer, John N J, 1996. "Income Persistence and Macro-Policy Feedbacks in the U.S," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 703-33, November.
  6. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  7. Hendry, David F, 1985. "Monetary Economic Myth and Econometric Reality," Oxford Review of Economic Policy, Oxford University Press, vol. 1(1), pages 72-84, Spring.
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