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A Bayesian-Estimated Model of Inflation Targeting in South Africa

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  • Thomas Harjes
  • Luca A Ricci

Abstract

This paper estimates a small dynamic macroeconomic model for the South African economy with Bayesian methods. The model is tailored to assessing the impact of domestic as well as external shocks on inflation within an inflation targeting framework, by incorporating forward-looking behavior of private agents and of the monetary authority. The model is able to display important empirical features of the monetary transmission mechanism that have been found in other studies. It helps to integrate the short-term inflation outlook into a consistent medium-term framework and to design the policy response for various shocks that affect inflation.

Suggested Citation

  • Thomas Harjes & Luca A Ricci, 2008. "A Bayesian-Estimated Model of Inflation Targeting in South Africa," IMF Working Papers 08/48, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/48
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    References listed on IDEAS

    as
    1. Raf Wouters & Frank Smets, 2005. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 161-183.
    2. Scott Roger & Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund.
    3. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, pages 964-985.
    4. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, January.
    5. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    6. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
    7. Steinsson, Jon, 2003. "Optimal monetary policy in an economy with inflation persistence," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1425-1456, October.
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    Citations

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    Cited by:

    1. Aron, Janine & Farrell, Greg & Muellbauer, John & Sinclair, Peter, 2010. "Exchange Rate Pass-through and Monetary Policy in South Africa," CEPR Discussion Papers 8153, C.E.P.R. Discussion Papers.
    2. repec:eee:reveco:v:49:y:2017:i:c:p:243-254 is not listed on IDEAS
    3. Andrew Berg & Filiz D Unsal & Rafael A Portillo, 2010. "On the Optimal Adherence to Money Targets in a New-Keynesian Framework; An Application to Low-Income Countries," IMF Working Papers 10/134, International Monetary Fund.
    4. Malikane, Christopher & Ojah, Kalu, 2014. "Fisher's Relation and the Term Structure: Implications for IS Curves," MPRA Paper 55553, University Library of Munich, Germany.

    More about this item

    Keywords

    Demand; Exchange rate instability; Energy prices; Inflation targeting; Inflation; South Africa; monetary model; Bayesian estimation; monetary policy; real interest rate; monetary transmission;

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