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Real interest rate persistence in South Africa: evidence and implications

Listed author(s):
  • Sonali Das
  • Rangan Gupta

    ()

  • Patrick Kanda
  • Monique Reid
  • Christian Tipoy
  • Mulatu Zerihun

The real interest rate is a very important variable in the transmission of monetary policy. It features in vast majority of financial and macroeconomic models. Though the theoretical importance of the real interest rate has generated a sizable literature that examines its long-run properties, surprisingly, there does not exist any study that delves into this issue for South Africa. Given this, using quarterly data (1960:Q2-2010:Q4) for South Africa, our paper endeavors to analyze the long-run properties of the ex post real rate by using tests of unit root, cointegration, fractional integration and structural breaks. In addition, we also analyze whether monetary shocks contribute to fluctuations in the real interest rate based on test of structural breaks of the rate of inflation, as well as, Bayesian change point analysis. Based on the tests conducted, we conclude that the South African EPPR can be best viewed as a very persistent but ultimately mean-reverting process. Also, the persistence in the real interest rate can be tentatively considered as a monetary phenomenon. Copyright Springer Science+Business Media New York 2014

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File URL: http://hdl.handle.net/10.1007/s10644-012-9132-5
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Article provided by Springer in its journal Economic Change and Restructuring.

Volume (Year): 47 (2014)
Issue (Month): 1 (February)
Pages: 41-62

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Handle: RePEc:kap:ecopln:v:47:y:2014:i:1:p:41-62
DOI: 10.1007/s10644-012-9132-5
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/development/journal/10644/PS2

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