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Some Issues in Modeling and Forecasting Inflation in South Africa

  • Janine Aron

Inflation targeting central banks will be hampered without good models to assist them to be forward-looking.� Many current inflation models fail to forecast turning points adequately, because they miss key underlying long-run influences.� The world is on the cusp of a dramatic turning point in inflation.� If inflation falls rapidly, such models can underestimate the speed at which interest rates should fall, damaging growth.� Our forecasting models for the new measure of producer price inflation suggest methodological lessons, and build on conflicting pressures on SA inflation from exchange rate depreciation, terms of trade shocks, collapsing oil, food and other commodity prices, and other shocks.� Our US and SA forecasting models for consumer price inflation underline the methodological points, and suggest the usefulness of thinking about sectoral trends.� Finally, we apply the sectoral approach to understanding the monetary policy implications of introducing a new CPI measure in SA that uses imputed rents rather than interest rates to capture housing costs.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number CSAE WPS/2009-01.

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Date of creation: 01 Feb 2009
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Handle: RePEc:oxf:wpaper:csae-wps/2009-01
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  1. Janine Aron & John Muellbauer, 2005. "Monetary Policy, Macro-stability and Growth," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 6(4), pages 123-147, October.
  2. Janine Aron & John Muellbauer, 2008. "Multi-sector inflation forecasting - quarterly models for South Africa," CSAE Working Paper Series 2008-27, Centre for the Study of African Economies, University of Oxford.
  3. Janine Aron & John Muellbauer, 2008. "Monetary Policy and Inflation Modeling in a more Open Economy in South Africa," CSAE Working Paper Series 2008-28, Centre for the Study of African Economies, University of Oxford.
  4. Johannes Fedderke & Chandana Kularatne & Martine Mariotti, 2007. "Mark-up Pricing in South African Industry," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 16(1), pages 28-69, January.
  5. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  7. Janine Aron & John Muellbauer, 2004. "Construction Of Cpix Data For Forecasting And Modelling In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 72(5), pages 884-912, December.
  8. Janine Aron & John Muellbauer, 2006. "Review of Monetary Policy in South Africa since 1994," CSAE Working Paper Series 2006-07, Centre for the Study of African Economies, University of Oxford.
  9. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521634809.
  10. Weiss, Andrew A., 1991. "Multi-step estimation and forecasting in dynamic models," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 135-149.
  11. Janine Aron & John Muellbauer & Coen Pretorius, 2004. "A Framework for Forecasting the Components of the Consumer Price," Development and Comp Systems 0409054, EconWPA.
  12. Aron, Janine & Muellbauer, John, 2007. "Inflation Dynamics and Trade Openness," CEPR Discussion Papers 6346, C.E.P.R. Discussion Papers.
  13. Clements, Michael P. & Hendry, David F., 1996. "Multi-Step Estimation for Forecasting," The Warwick Economics Research Paper Series (TWERPS) 447, University of Warwick, Department of Economics.
  14. Michael P. Clements & David F. Hendry, 2002. "Modelling methodology and forecast failure," Econometrics Journal, Royal Economic Society, vol. 5(2), pages 319-344, 06.
  15. James G. MacKinnon, 2010. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  16. Janine Aron & John Muellbauer, 2008. "New methods for forecasting inflation and its sub-components: application to the USA," Economics Series Working Papers 406, University of Oxford, Department of Economics.
  17. J.W. Fedderke & E. Schaling, 2005. "Modelling Inflation In South Africa: A Multivariate Cointegration Analysis," South African Journal of Economics, Economic Society of South Africa, vol. 73(1), pages 79-92, 03.
  18. Janine Aron & Geeta Kingdon, 2007. "South African Economic Policy Under Democracy," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 16(5), pages 661-667, November.
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