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The sensitivity of South African inflation expectations to surprises

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Author Info
Monique Reid () (Department of Economics, University of Stellenbosch)
Abstract

Price stability is widely recognised as the primary goal of modern monetary policy, and the management of private sector inflation expectations has become an essential channel through which this goal is achieved. This evaluation aims to improve the understanding of how the sensitivity of private sector inflation expectations to macroeconomic surprises in South Africa compares internationally, as this provides an indication of the contribution of monetary policy in South Africa to anchoring inflation expectations. If a central bank is credible, the financial markets should react less sensitively to macroeconomics surprises, because they trust the central bank to manage these incidents and achieve the objectives they communicated over the medium to long term. In this paper, the methodology of Gurkaynack, Sack and Swanson (2005a) is adopted in order to measure the sensitivity of South African inflation expectations to surprises. A comparison of South Africa’s results with those of countries in the original studies supports the contention that the SARB (South African Reserve Bank) has encouraged inflation expectations to be relatively insensitive to macroeconomic surprises, and offers support for the inflation targeting framework as a means to help anchor inflation expectations.

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File URL: http://www.ekon.sun.ac.za/wpapers/2009/wp162009/wp-16-2009.pdf
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File Function: First version, 2009
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Publisher Info
Paper provided by Stellenbosch University, Department of Economics in its series Working Papers with number 16/2009.

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Date of creation: 2009
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Handle: RePEc:sza:wpaper:wpapers88

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Related research
Keywords: South Africa; Inflation targeting; Macroeconomic surprises; Sensitivity of inflation expectations;

Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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This page was last updated on 2009-11-28.

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