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Estimating the Implicit Inflation Target of the South African Reserve Bank

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  • Nir Klein
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    Abstract

    This paper applies a state-space approach to estimate the implicit inflation target of the South African Reserve Bank (SARB) since the adoption of the Inflation Targeting (IT) framework. The paper's findings are two. First, although the official inflation target range is 3.6 percent, in practice, the SARB seems to have aimed for the upper segment of the band (41.2 .6 percent) for most of the period, despite the substantial variation of the output gap. Second, the estimation results show that the implicit inflation target varied over time, and in recent years it has shifted toward the upper limit of the inflation target range. This perhaps suggests that since the outbreak of the financial crisis in 2008, the SARB's tolerance for higher inflation has somewhat increased to better support economic activity.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/177.

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    Length: 16
    Date of creation: 01 Jul 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/177

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    Related research

    Keywords: Monetary policy; Economic models; Inflation targeting; Prices; inflation; inflation target; central bank; monetary fund; inflation stabilization; aggregate demand; price stability; average inflation; monetary policy reaction function; inflation targeting framework; inflation rate; inflation targeting regime; inflation rates; actual inflation; financial stability; real rates; post-crisis periods; real interest rate;

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    1. Inci Ötker & David Vávra & Francisco F. Vázquez & Luis Ignacio Jácome & Karl Friedrich Habermeier & Kotaro Ishi & Alessandro Giustiniani & Turgut Kisinbay, 2009. "Inflation Pressures and Monetary Policy Options in Emerging and Developing Countries-A Cross Regional Perspective," IMF Working Papers 09/1, International Monetary Fund.
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    Cited by:
    1. Eliphas Ndou & Nombulelo Gumata & Mthuli Ncube & Eric Olson, 2013. "Working Paper 189 - An Empirical Investigation of the Taylor Curve in South Africa," Working Paper Series 992, African Development Bank.

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