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Monetary Policy and Relative Price Shocks in South Africa and Other Inflation Targeters

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  • Alfredo Cuevas
  • Secil Topak
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    Abstract

    When faced with a relative price shock, monetary authorities often aim to contain its second round effects on inflation while accepting first round effects. We analyze the experience of South Africa and other inflation targeters to explore whether and when this policy prescription implies changing the monetary policy stance. Inflation targeting central banks differ on how aggressively they typically react to relative price shocks, reflecting differences in resilience of underlying inflation to such shocks. An examination of individual policy decisions reveals the importance of the broader economic context in framing the responses to relative price shocks.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/289.

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    Length: 25
    Date of creation: 01 Dec 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/289

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    Related research

    Keywords: Monetary policy; Inflation; External shocks; Inflation targeting; Energy prices; Commodity prices; relative price; central bank; monetary policy decisions; monetary authorities; price inflation; high inflation; monetary fund; relative prices; inflation target; aggregate demand; monetary economics; inflation targeting framework; monetary policy rules; increase in inflation; rate of inflation; price level; wage inflation; rates of inflation; inflation-targeting; monetary policy ? regime; inflation objective; variable inflation; retail price index; monetary policies; rising inflation; monetary policy reaction functions; monetary conditions; inflation rate; monetary policy transparency; optimal monetary policy; inflation process; moderate inflation;

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    1. Christophe Kamps & Christian Pierdzioch, 2002. "Monetary Policy Rules and Oil Price Shocks," Kiel Working Papers 1090, Kiel Institute for the World Economy.
    2. Aoki, Kosuke, 2001. "Optimal monetary policy responses to relative-price changes," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 55-80, August.
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