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South Africa; The Cyclical Behavior of the Markups and its Implications for Monetary Policy

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  • Nir Klein

Abstract

The study looks at the cyclical behavior of the markups and assesses its impact on inflation dynamics. The analysis finds that the aggregate level of the private sector's markup is relatively high, thus pointing to the lack of strong competition in South Africa's product markets. Additionally, the results suggest that the markups tend to move in a countercyclical manner, with a short-term positive impact on inflation. This implies that the countercyclical pattern of the markups is one factor among others that contribute to the relatively weak output gap-inflation co-movement. In the context of South Africa's inflation targeting framework, the counter-cyclical markups may also generate an asymmetric response of monetary policy to the fluctuations in economic activity.

Suggested Citation

  • Nir Klein, 2011. "South Africa; The Cyclical Behavior of the Markups and its Implications for Monetary Policy," IMF Working Papers 11/204, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/204
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    References listed on IDEAS

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    Cited by:

    1. Charl Jooste & Yaseen Jhaveri, 2014. "The Determinants of Time-Varying Exchange Rate Pass-Through in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 82(4), pages 603-615, December.
    2. World Bank Group, 2016. "South Africa Economic Update, February 2016," World Bank Other Operational Studies 23762, The World Bank.
    3. Alain Kabundi & Asi Mbelu, 2018. "Has the Exchange Rate Pass‐Through changed in South Africa?," South African Journal of Economics, Economic Society of South Africa, vol. 86(3), pages 339-360, September.
    4. Alain Kabundi & Montfort Mlachila, 2018. "Monetary Policy Credibility and Exchange Rate Pass-Through in South Africa," Working Papers 8690, South African Reserve Bank.
    5. Chris Redl, 2018. "Macroeconomic Uncertainty in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 86(3), pages 361-380, September.
    6. Mustafa Utku Ozmen, 2016. "In Pursuit of Understanding Markups in Restaurant Services Prices," Working Papers 1602, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    7. Liew, Freddy, 2012. "Forecasting inflation in Asian economies," MPRA Paper 36781, University Library of Munich, Germany.
    8. Fedderke, Johannes W., 2018. "Exploring unbalanced growth: Understanding the sectoral structure of the South African economy," Economic Modelling, Elsevier, vol. 72(C), pages 177-189.
    9. Justyna Kufel-Aid, 2016. "Power Market in The Polish Food Sector Branches and The Competition Policy," International Conference on Competitiveness of Agro-food and Environmental Economy Proceedings, The Bucharest University of Economic Studies, vol. 5, pages 83-94.

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