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Estimating the Implicit Inflation Target of the South African Reserve Bank

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  • Nir Klein

Abstract

This paper applies a state-space approach to estimate the implicit inflation target of the South African Reserve Bank (SARB) since the adoption of the Inflation Targeting (IT) framework. The paper's findings are two. First, although the official inflation target range is 3.6 percent, in practice, the SARB seems to have aimed for the upper segment of the band (41.2 .6 percent) for most of the period, despite the substantial variation of the output gap. Second, the estimation results show that the implicit inflation target varied over time, and in recent years it has shifted toward the upper limit of the inflation target range. This perhaps suggests that since the outbreak of the financial crisis in 2008, the SARB's tolerance for higher inflation has somewhat increased to better support economic activity.

Suggested Citation

  • Nir Klein, 2012. "Estimating the Implicit Inflation Target of the South African Reserve Bank," IMF Working Papers 12/177, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/177
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    References listed on IDEAS

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    1. Inci Ötker & David Vávra & Francisco F. Vazquez & Luis Ignacio Jácome & Karl F Habermeier & Kotaro Ishi & Alessandro Giustiniani & Turgut Kisinbay, 2009. "Inflation Pressures and Monetary Policy Options in Emerging and Developing Countries—A Cross Regional Perspective," IMF Working Papers 09/1, International Monetary Fund.
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    Cited by:

    1. Eliphas Ndou & Nombulelo Gumata & Mthuli Ncube & Eric Olson, 2013. "Working Paper 189 - An Empirical Investigation of the Taylor Curve in South Africa," Working Paper Series 992, African Development Bank.
    2. repec:eco:journ1:2017-03-58 is not listed on IDEAS
    3. Dube, Smile, 2016. "Exchange Rate Pass-Through (ERPT) and Inflation-Targeting (IT): Evidence from South Africa - Exchange rate pass-through and inflation targeting: evidenze dal Sud Africa," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(2), pages 121-150.
    4. Stan du Plessis & Ben Smit & Rudi Steinbach, 2014. "Working Paper – WP/14/04- A medium-sized open economy DSGE model of South Africa," Papers 6319, South African Reserve Bank.
    5. Fadia Al Hajj & Gilles Dufrénot & Kimiko Sugimoto & Romain Wolf, 2015. "Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Sub-Saharan Africa," The Developing Economies, Institute of Developing Economies, vol. 53(4), pages 237-271, December.

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