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The South African Phillips Curve: How Applicable Is The Gordon Model?

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  • P. Burger
  • M. Marinkov

Abstract

Is there a Phillips curve relationship present in South Africa and if so, what form does it take? Traditionally the method to establish whether or not there is a relationship between the output gap and the change in inflation is merely to regress the latter on the former. This yields the well‐known augmented Phillips curve. However, Gordon has argued that this specification of the Phillips curve produces biased results. Instead, he puts forward and estimates successfully for several industrialised countries his so‐called triangular model that tests for hysteresis and inertia in the behaviour of inflation, as well as the impact on inflation of changes in the output level. This paper considers whether or not Gordon's triangle model is applicable to South Africa, i.e. are hysteresis and inertia present in South Africa? In addition, in an attempt to find a better estimation of the output gap, the paper also experiments with alternative ways to estimate the long‐run output level, including the standard HP‐filter, as well as a production function approach.

Suggested Citation

  • P. Burger & M. Marinkov, 2006. "The South African Phillips Curve: How Applicable Is The Gordon Model?," South African Journal of Economics, Economic Society of South Africa, vol. 74(2), pages 172-189, June.
    • Handle: RePEc:bla:sajeco:v:74:y:2006:i:2:p:172-189
    DOI: 10.1111/j.1813-6982.2006.00062.x
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    References listed on IDEAS

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    1. Ben Smit & Le Roux Burrows, 2002. "Estimating potential output and output gaps for the South African economy," Working Papers 05/2002, Stellenbosch University, Department of Economics.
    2. A. W. Phillips, 1958. "The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957," Economica, London School of Economics and Political Science, vol. 25(100), pages 283-299, November.
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    5. Kevin S. Nell, 2000. "Is Low Inflation a Precondition for Faster Growth? The Case of South Africa," Studies in Economics 0011, School of Economics, University of Kent.
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    Citations

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    Cited by:

    1. Stan du Plessis & Ben Smit & Federico Sturzenegger, 2007. "Identifying aggregate supply and demand shocks in South Africa," Working Papers 11/2007, Stellenbosch University, Department of Economics.
    2. Temitope Leshoro & Umakrishnan Kollamparambil, 2016. "Inflation Or Output Targeting? Monetary Policy Appropriateness In South Africa," PSL Quarterly Review, Economia civile, vol. 69(276), pages 77-104.
    3. Stan du Plessis & Ben Smit & Federico Sturzenegger, 2008. "Identifying Aggregate Supply and Demand Shocks in South Africa †," Journal of African Economies, Centre for the Study of African Economies, vol. 17(5), pages 765-793, November.
    4. Kushal Banik Chowdhury & Nityananda Sarkar, 2017. "Is the Hybrid New Keynesian Phillips Curve Stable? Evidence from Some Emerging Economies," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 15(3), pages 427-449, September.
    5. Phiri, Andrew, 2015. "Examining asymmetric effects in the South African Philips curve: Evidence from logistic smooth transition regression (LSTR) models," MPRA Paper 64487, University Library of Munich, Germany.
    6. Rangan Gupta & Josine Uwilingiye, 2010. "Dynamic Time Inconsistency And The South African Reserve Bank," South African Journal of Economics, Economic Society of South Africa, vol. 78(1), pages 76-88, March.
    7. Dladla, Pholile & Malikane, Christopher, 2022. "Inflation dynamics in an emerging market: The case of South Africa," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 262-271.
    8. Mbekeni Lutho & Phiri Andrew, 2020. "South African Unemployment in the Post-Financial Crisis Era: What are the Determinants?," Folia Oeconomica Stetinensia, Sciendo, vol. 20(2), pages 230-248, December.
    9. Lumengo Bonga-Bonga & Beatrice Desiree Simo-Kengne, 2018. "Inflation and Output Growth Dynamics in South Africa: Evidence from the Markov Switching Vector Autoregressive Model," Journal of African Business, Taylor & Francis Journals, vol. 19(1), pages 143-154, January.
    10. Phiri, Andrew, 2014. "Re-evaluating Okun's law in South Africa: A nonlinear co-integration approach," MPRA Paper 57398, University Library of Munich, Germany.
    11. Lumengo Bonga-Bonga & Ntsakeseni Letitia Lebese, 2019. "Rethinking The Current Inflation Target Range In South Africa," Journal of Developing Areas, Tennessee State University, College of Business, vol. 53(2), pages 13-27, April-Jun.
    12. Phiri, Andrew, 2016. "Changes in inflation persistence prior and subsequent to the subprime crisis: What are the implications for South Africa?," MPRA Paper 70645, University Library of Munich, Germany.
    13. Vincent Dadam & Nicola Viegi, 2021. "Estimating a New Keynesian Wage Phillips Curve," Working Papers 202107, University of Pretoria, Department of Economics.
    14. Robert Calvert Jump & Engelbert Stockhammer, 2019. "Reconsidering the natural rate hypothesis," FMM Working Paper 45-2019, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    15. Arne Heise, 2007. "Institutions, market constellations and growth: The case of South Africa," Annals of Economics and Finance, Society for AEF, vol. 8(2), pages 313-340, November.
    16. Hayelom Yrgaw Gereziher & Naser Yenus Nuru, 2021. "Structural estimates of the South African sacrifice ratio," WIDER Working Paper Series wp-2021-12, World Institute for Development Economic Research (UNU-WIDER).
    17. Andrew Phiri, 2014. "Nonlinear Co-Integration Between Unemployment and Economic Growth in South Africa," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 12(4 (Winter), pages 303-324.
    18. Philippe Burger, 2014. "Inflation and Market Uncertainty in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 82(4), pages 583-602, December.

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