IDEAS home Printed from https://ideas.repec.org/p/fip/fedfwp/102406.html

A Market-Based Assessment of the Outlook for Inflation Expectations and Monetary Policy in South Africa

Author

Abstract

Using a novel arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for bond-specific liquidity risk premia, this paper provides estimates of bond investors’ inflation expectations and associated inflation risk premia in South African sovereign bonds. The results suggest that investors’ long-term inflation expectations have gradually been declining towards the tolerance band adopted by the South African Reserve Bank in 2000. Although volatile, the estimated inflation risk premia have declined significantly since 2021, while a market-based estimate of the natural real rate has remained stable and slightly negative. A related measure of the stance of monetary policy is currently assessed to be mildly restrictive. Leveraging the estimated model’s rich dynamics to assess the outlook for these key variables suggests that expected inflation is likely to gradually fall further, while monetary policy is projected to ease towards neutral in the context of a stable natural real rate.

Suggested Citation

  • Jens H. E. Christensen & Daan Steenkamp, 2026. "A Market-Based Assessment of the Outlook for Inflation Expectations and Monetary Policy in South Africa," Working Paper Series 2026-03, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:102406
    DOI: 10.24148/wp2026-03
    Note: PDF date: January 26, 2006.
    as

    Download full text from publisher

    File URL: https://www.frbsf.org/wp-content/uploads/wp2026-03.pdf
    File Function: PDF - view
    Download Restriction: no
    File URL: https://www.frbsf.org/research-and-insights/publications/working-papers/2026/02/market-based-assessment-outlook-inflation-expectations-monetary-policy-south-africa/
    File Function: FRBSF - view
    Download Restriction: no
    File URL: https://libkey.io/10.24148/wp2026-03?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedfwp:102406. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Federal Reserve Bank of San Francisco Research Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbsfus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.