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Loud and Clear? Can we hear when the SARB speaks?

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  • Monique Reid
  • Stan du Plessis

Abstract

Inflation targeting is a forward-looking framework for monetary policy that has brought unprecedented transparency to the process of monetary policy. This paper aims to assess the degree to which the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has, since the introduction of inflation targeting, successfully communicated to the public its policy analysis, and, in particular, the expected future policy changes. This paper follows international literature (Rosa and Verga (2007), Ehrmann and Fratszcher (2005)) in constructing a numerical index that is used to reflect the information content of the SARB’s communications, specifically the monetary policy statements that accompanied each of the MPC meetings since 2000. The information in these reports is translated into a five-point scale that reflects the policy inclination communicated by the MPC. This ranges from a clearly signalled inclination to ease policy at one end of the scale, to a clearly signalled inclination to tighten policy at the other end. Relating this index to subsequent policy decisions reveals the informativeness of the index and, by implication, the informativeness of the underlying monetary policy statements. This method allows us to judge, systematically, the degree to which the MPC has communicated successfully, and the evolution of that success over the past nine years.

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Paper provided by Economic Research Southern Africa in its series Working Papers with number 155.

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Handle: RePEc:rza:wpaper:155

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Cited by:
  1. Monique Reid & Stan Du Plessis, 2011. "Talking to the inattentive public: How the media translates the Reserve Bank’s communications," Working Papers, Economic Research Southern Africa 254, Economic Research Southern Africa.
  2. Tatiana Lysenko & Geoff Barnard, 2011. "Strengthening the Macroeconomic Policy Framework in South Africa," OECD Economics Department Working Papers 847, OECD Publishing.
  3. Monique Reid & Stan du Plessis, 2011. "Talking to the inattentive Public: How the media translates the Reserve Bank’s communications," Working Papers 19/2011, Stellenbosch University, Department of Economics.
  4. Kasai, Ndahiriwe & Naraidoo, Ruthira, 2011. "Evaluating the forecasting performance of linear and nonlinear monetary policy rules for South Africa," MPRA Paper 40699, University Library of Munich, Germany.

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