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A Structural Model of the Inflation Process in South Africa

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Author Info
Janine Aron (Centre for the Study of African Economies)
John Muellbauer (Nuffield College, University of Oxford)
Benjamin Smit (Bureau of Economic Research, Stellenbosch University)

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Abstract

We build a 4-equation model of the inflation process in South Africa (which has recently adopted inflation targeting), including the exchange rate, consumer prices, producer price, and import prices. This provides useful information on the speed and extent of exchange rate pass- through, and illuminates the various channels through which monetary policy influences inflation. The model is in the tradition of central bank models of the inflation process, but carefully tests for asymmetries, structural breaks and expectations effects, and applies a range of econometric tests and methods to refute the charge that such models necessarily impose ‘incredible’ restrictions, Sims (1980).

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Publisher Info
Paper provided by EconWPA in its series Development and Comp Systems with number 0409055.

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Length: 46 pages
Date of creation: 28 Sep 2004
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Handle: RePEc:wpa:wuwpdc:0409055

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
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

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Aron, Janine & Muellbauer, John, 2002. "Interest Rate Effects on Output: Evidence from a GDP Forecasting Model for South Africa," CEPR Discussion Papers 3595, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Sims, Christopher A, 1996. "Macroeconomics and Methodology," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 105-20, Winter. [Downloadable!] (restricted)
  3. Krolzig, Hans-Martin & Hendry, David F., 2001. "Computer automation of general-to-specific model selection procedures," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 831-866, June. [Downloadable!] (restricted)
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  4. Brayton, Flint & Levin, Andrew & Lyon, Ralph & Williams, John C., 1997. "The evolution of macro models at the Federal Reserve Board," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 43-81, December. [Downloadable!] (restricted)
  5. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  6. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Oriana Bandiera & Gerard Caprio & Patrick Honohan & Fabio Schiantarelli, 2000. "Does Financial Reform Raise or Reduce Saving?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 239-263, May. [Downloadable!] (restricted)
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  9. Aron, Janine & Ayogu, Melvin, 1997. "Foreign Exchange Market Efficiency Tests in Sub-Saharan Africa," Journal of African Economies, Oxford University Press, vol. 6(3), pages 150-92, Supplemen.
  10. Aron, J. & Muellbauer, J., 2001. "Estimating Monetary Policy Rules for South Africa," Working Papers Series 2001-7, Centre for the Study of African Economies, University of Oxford.
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  11. Janine Aron & John Muellbauer, 2004. "Construction of CPIX Data for Forecasting and Modelling in South Africa," Development and Comp Systems 0409056, EconWPA. [Downloadable!]
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  12. Marvin J. Barth III & Valerie A. Ramey, 2000. "The Cost Channel of Monetary Transmission," NBER Working Papers 7675, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Lucio Sarno & Mark P. Taylor, . "Real Interest Rates, Liquidity Constraints and Financial Deregulation: Private Consumption Behaviour in the UK," Economics and Finance Discussion Papers 97-12, Economics and Finance Section, School of Social Sciences, Brunel University.
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  14. Chevalier, Judith A & Scharfstein, David S, 1996. "Capital-Market Imperfections and Countercyclical Markups: Theory and Evidence," American Economic Review, American Economic Association, vol. 86(4), pages 703-25, September. [Downloadable!] (restricted)
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  15. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584. [Downloadable!] (restricted)
  16. Aron, Janine & Muellbauer, John, 2000. "Personal and Corporate Saving in South Africa," CEPR Discussion Papers 2656, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  17. Gunnar Bårdsen & Eilev S. Jansen & Ragnar Nymoen, 2002. "The Empirical (ir)Relevance of the New Keynesian Phillips Curve," Working Paper Series 2102, Department of Economics, Norwegian University of Science and Technology. [Downloadable!]
  18. Bayoumi, Tamim A, 1993. "Financial Deregulation and Consumption in the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 536-39, August. [Downloadable!] (restricted)
  19. Luca Antonio Ricci & Ronald MacDonald, 2003. "Estimation of the Equilibrium Real Exchange Rate for South Africa," IMF Working Papers 03/44, International Monetary Fund. [Downloadable!]
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  20. Kevin D. Hoover & Stephen J. Perez, . "Data Mining Reconsidered: Encompassing And The General-To-Specific Approach To Specification Search," Department of Economics 97-27, California Davis - Department of Economics. [Downloadable!]
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  21. David F. Hendry & Hans-Martin Krolzig, 1999. "Improving on 'Data mining reconsidered' by K.D. Hoover and S.J. Perez," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 202-219.
  22. Clements, Michael P & Hendry, David F, 1995. "Macro-economic Forecasting and Modelling," Economic Journal, Royal Economic Society, vol. 105(431), pages 1001-13, July. [Downloadable!] (restricted)
  23. Aron, J. & Elbadawi, I. & Kahn, B., 1998. "Determinants of the Real Exchange Rate in South Africa," Working Papers Series 98-16, Centre for the Study of African Economies, University of Oxford.
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  24. Razin, Assaf & Yuen, Chi-Wa, 2002. "The 'New Keynesian' Phillips curve: closed economy versus open economy," Economics Letters, Elsevier, vol. 75(1), pages 1-9, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Aron, Janine & Muellbauer, John, 2006. "Review of Monetary Policy in South Africa: 1994-2004," CEPR Discussion Papers 5831, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Tito Nícias Teixeira da Silva Filho, 2008. "Searching for the Natural Rate of Unemployment in a Large Relative Price Shocks' Economy: the Brazilian Case," Working Papers Series 163, Central Bank of Brazil, Research Department. [Downloadable!]
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