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Monetary Transmission and Policy Rules in South Africa

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  • Janine Aron

    (University of Oxford)

Abstract

South African monetary policy in the last 30 years has experienced major regime shifts. This paper finds that Taylor rules, augmented for foreign interest rate influences, and based either on forecast, or actual, inflation and output gap measures, poorly describe the behaviour of the discount rate in the relevant sub-periods. Alternative descriptions of central bank behaviour are modelled. Forecasting output, however, we find strong real and nominal interest rate effects over 30 years, though subject to a regime shift. Forecasting inflation one year ahead, it appears that monetary policy has its effect mainly via the exchange rate and the output gap, with little evidence for an influence of money supply variations. In the short-run, higher interest rates raise inflation.

Suggested Citation

  • Janine Aron, 2000. "Monetary Transmission and Policy Rules in South Africa," Econometric Society World Congress 2000 Contributed Papers 1627, Econometric Society.
  • Handle: RePEc:ecm:wc2000:1627
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    1. Muellbauer, John N J, 1996. "Income Persistence and Macro-Policy Feedbacks in the U.S," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 703-733, November.
    2. Hendry, David F, 1985. "Monetary Economic Myth and Econometric Reality," Oxford Review of Economic Policy, Oxford University Press, vol. 1(1), pages 72-84, Spring.
    3. 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.
    4. Richard H. Clarida & Mark Gertler, 1997. "How the Bundesbank Conducts Monetary Policy," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 363-412 National Bureau of Economic Research, Inc.
    5. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-247, July-Sept.
    6. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    7. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
    8. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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