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A Bayesian-Estimated Model of Inflationtargeting in South Africa

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  • Thomas Harjes
  • Luca Antonio Ricci

Abstract

This paper estimates a small dynamic macroeconomic model for the South African economy with Bayesian methods. The model is tailored to assessing the impact of domestic as well as external shocks on inflation within an inflation targeting framework, by incorporating forward-looking behavior of private agents and of the monetary authority. The model is able to display important empirical features of the monetary transmission mechanism that have been found in other studies. It helps to integrate the short-term inflation outlook into a consistent medium-term framework and to design the policy response for various shocks that affect inflation.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/48.

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Length: 24
Date of creation: 01 Feb 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/48

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Keywords: Inflation targeting; Energy prices; Exchange rate instability; inflation; monetary policy; real interest rate; monetary transmission; monetary transmission mechanism; aggregate demand; monetary authorities; monetary fund; inflation target; inflation targeting regime; inflation targeting framework; monetary reaction function; monetary economics; inflation rate; nominal interest rate; real interest rates; monetary authority; central bank; monetary policy rule; actual inflation; monetary model; national bank; inflation dynamics; monetary policy independence; monetary policy transmission mechanism; lower inflation; monetary policy reaction function; monetary policy rules; inflationary shock; inflation process; transmission of monetary policy; nominal interest rates; inflation response; aggregate demand curve; monetary theory; foreign currency; rational expectations; annual inflation; annual inflation rate;

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References

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  1. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
  2. Scott Roger & Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund.
  3. Raf Wouters & Frank Smets, 2005. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 161-183.
  4. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
  5. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, December.
  6. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
  7. Jón Steinsson, 2000. "Optimal monetary policy in an economy with inflation persistence," Economics wp11, Department of Economics, Central bank of Iceland.
  8. repec:nbr:nberwo:12876 is not listed on IDEAS
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Cited by:
  1. Aron, Janine & Farrell, Greg & Muellbauer, John & Sinclair, Peter, 2010. "Exchange Rate Pass-through and Monetary Policy in South Africa," CEPR Discussion Papers 8153, C.E.P.R. Discussion Papers.
  2. Malikane, Christopher & Ojah, Kalu, 2014. "Fisher's Relation and the Term Structure: Implications for IS Curves," MPRA Paper 55553, University Library of Munich, Germany.

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