Estimating the inflation threshold for South Africa
AbstractHow detrimental is inflation to growth in South Africa? At what level? Motivated by the adoption of inflation targeting by many countries, this paper sets out to empirically determine the threshold level of inflation in South Africa. This study adopts quarterly time series data spanning over the period 1980:Q2 to 2010:Q3. The threshold regression model developed by Khan and Senhadji (2001) was used in this study. The econometric technique used is the Ordinary Least Squares (OLS) and the model was re-estimated using the two-stage least squares instrumental variable (2SLS-IV) to check for robustness. The results show that the inflation threshold level occurs at 4 percent. At inflation levels below and up to 4 percent there is a positive but insignificant relationship between inflation and growth. The relationship becomes negative and significant when the inflation rate is above 4 percent. The tests of robustness support these findings.
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Bibliographic InfoPaper provided by Economic Research Southern Africa in its series Working Papers with number 285.
Length: 15 pages
Date of creation: 2012
Date of revision:
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More information through EDIRC
Inflation; GDP Growth; Threshold level; South Africa.;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-AFR-2012-05-29 (Africa)
- NEP-ALL-2012-05-29 (All new papers)
- NEP-MAC-2012-05-29 (Macroeconomics)
- NEP-MON-2012-05-29 (Monetary Economics)
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