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Forecasting Monetary Policy Rules in South Africa

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  • R Naraidoo
  • I Paya

Abstract

This paper is the .rst one to: (i) provide in-sample estimates of linear and nonlinear Taylor rules augmented with an indicator of .nancial stability for the case of South Africa, (ii) analyse the ability of linear and nonlinear monetary policy rule speci.cations as well as nonparametric and semiparametric models in forecasting the nominal interest rate setting that describes the South African Reserve Bank (SARB) policy decisions. Our results indicate, .rst, that asset prices are taken into account when setting interest rates; second, the existence of nonlinearities in the monetary policy rule; and third, forecasts constructed from combinations of all models perform particularly well and that there are gains from semiparametric models in forecasting the interest rates as the forecasting horizon lengthens.

Suggested Citation

  • R Naraidoo & I Paya, 2010. "Forecasting Monetary Policy Rules in South Africa," Working Papers 611194, Lancaster University Management School, Economics Department.
  • Handle: RePEc:lan:wpaper:611194
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    Cited by:

    1. Naraidoo, Ruthira & Paya, Ivan, 2012. "Forecasting monetary policy rules in South Africa," International Journal of Forecasting, Elsevier, vol. 28(2), pages 446-455.
    2. Luchelle Soobyah & Mulalo Mamburu & Nicola Viegi, 2023. "IsSouthAfricafallingintoafiscaldominantregime," Working Papers 11041, South African Reserve Bank.
    3. Leroi RAPUTSOANE, 2016. "Financial Stress Indicator Variables and Monetary Policy in South Africa," Journal of Economics Bibliography, KSP Journals, vol. 3(2), pages 203-214, June.
    4. Ellyne, Mark & Veller, Carl, 2011. "What is the SARB's inflation targeting policy, and is it appropriate?," MPRA Paper 42134, University Library of Munich, Germany.
    5. Tumisang Loate & Ekaterina Pirozhkova & Nicola Viegi, 2021. "Sailing into the Wind evaluating the near future of Monetary Policy in South Africa," Working Papers 11006, South African Reserve Bank.
    6. Leroi RAPUTSOANE, 2015. "The lean versus clean debate and monetary policy in South Africa," Journal of Economics and Political Economy, KSP Journals, vol. 2(4), pages 467-480, December.
    7. Mehmet Balcilar & Rangan Gupta & Kevin Kotzé, 2017. "Forecasting South African macroeconomic variables with a Markov-switching small open-economy dynamic stochastic general equilibrium model," Empirical Economics, Springer, vol. 53(1), pages 117-135, August.
    8. Georgiadis, Georgios & Jančoková, Martina, 2020. "Financial globalisation, monetary policy spillovers and macro-modelling: Tales from 1001 shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 121(C).
    9. Chesang, Laban K. & Naraidoo, Ruthira, 2016. "Parameter uncertainty and inflation dynamics in a model with asymmetric central bank preferences," Economic Modelling, Elsevier, vol. 56(C), pages 1-10.
    10. Raputsoane, Leroi, 2018. "Targeting financial stress as opposed to the exchange rate," MPRA Paper 84865, University Library of Munich, Germany.
    11. Davide Debortoli & Ricardo Nunes, 2014. "Monetary Regime Switches and Central Bank Preferences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1591-1626, December.
    12. Alessandro Piergallini, 2019. "Nonlinear policy behavior, multiple equilibria and debt-deflation attractors," Journal of Evolutionary Economics, Springer, vol. 29(2), pages 563-580, April.
    13. Ruch,Franz Ulrich, 2021. "Neutral Real Interest Rates in Inflation Targeting Emerging and Developing Economies," Policy Research Working Paper Series 9711, The World Bank.
    14. Baaziz, Yosra & Labidi, Moez & Lahiani, Amine, 2013. "Does the South African Reserve Bank follow a nonlinear interest rate reaction function?," Economic Modelling, Elsevier, vol. 35(C), pages 272-282.
    15. Ruthira Naraidoo & Leroi Raputsoane, 2015. "Financial markets and the response of monetary policy to uncertainty in South Africa," Empirical Economics, Springer, vol. 49(1), pages 255-278, August.
    16. Njindan Iyke, Bernard, 2017. "Asymmetries in Yield Curves: Some Empirical Evidence from Ghana," MPRA Paper 79155, University Library of Munich, Germany.
    17. Kasai, Ndahiriwe & Naraidoo, Ruthira, 2011. "Evaluating the forecasting performance of linear and nonlinear monetary policy rules for South Africa," MPRA Paper 40699, University Library of Munich, Germany.
    18. Ma, Yong, 2016. "Nonlinear monetary policy and macroeconomic stabilization in emerging market economies: Evidence from China," Economic Systems, Elsevier, vol. 40(3), pages 461-480.
    19. Philippe Burger, 2014. "Inflation and Market Uncertainty in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 82(4), pages 583-602, December.

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    More about this item

    Keywords

    Taylor rules; nonlinearity; nonparametric; semiparametric; forecasting;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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