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Forward-Looking Monetary Policy Reaction Functions for South Africa

Author

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  • Irrshad Kaseeram

    (University of Zululand)

Abstract

This paper analyses the interes-rate decision-making behaviour of the South African Reserve Bank (SARB) since the of the adoption of the Inflation Targeting Monetary Policy Framework (ITMPF)1. The general method of moments (GMM) technique is used to model hybrid Taylor type rules, employing monthly revised data from the period January 2000 to February 2008. This study successfully demonstrates that policy responses are best described by a closed-economy reaction function that incorporates twelve months ahead-expected inflation together with the output gap. However, an open economy specification that includes deviations of real effective exchange rates from its reference value also gives plausible results.

Suggested Citation

  • Irrshad Kaseeram, 2010. "Forward-Looking Monetary Policy Reaction Functions for South Africa," The African Finance Journal, Africagrowth Institute, vol. 12(Conferenc), pages 98-109.
  • Handle: RePEc:afj:journl:v:12:y:2010:i:conference:p:98-109
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    More about this item

    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
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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