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A Structural Model of the Inflation Process in South Africa

  • Janine Aron
  • John Muellbauer
  • Benjamin W. Smit

We build a 4-equation model of the inflation process in South Africa (which has recently adopted inflation targeting), including the exchange rate, consumer prices, producer price, and import prices. This provides useful information on the speed and extent of exchange rate pass-through, and illuminates the various channels through which monetary policy influences inflation. The model is in the tradition of central bank models of the inflation process, but carefully tests for asymmetries, structural breaks and expectations effects, and applies a range of econometric tests and methods to refute the charge that such models necessarily impose `incredible` restrictions, Sims (1980).

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/2004-08.

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Date of creation: 01 Mar 2004
Date of revision:
Handle: RePEc:oxf:wpaper:wps/2004-08
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  1. Gunnar Bårdsen & Eilev S. Jansen & Ragnar Nymoen, 2002. "The Empirical (ir)Relevance of the New Keynesian Phillips Curve," Working Paper Series 2102, Department of Economics, Norwegian University of Science and Technology.
  2. Janine Aron & John Muellbauer, 2000. "Personal and Corporate Saving in South Africa," World Bank Economic Review, World Bank Group, vol. 14(3), pages 509-544, September.
  3. Bayoumi, Tamim A, 1993. "Financial Deregulation and Consumption in the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 536-39, August.
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  5. Kevin D. Hoover & Stephen J. Perez, 1999. "Data mining reconsidered: encompassing and the general-to-specific approach to specification search," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 167-191.
  6. Hans-Martin Krolzig, 2000. "Computer Automation of General-to-Specific Model Selection Procedures," Econometric Society World Congress 2000 Contributed Papers 0411, Econometric Society.
  7. Janine Aron & John Muellbauer, 2004. "Construction of CPIX Data for Forecasting and Modelling in South Africa," Economics Series Working Papers WPS/2004-09, University of Oxford, Department of Economics.
  8. Oriana Bandiera & Gerard Caprio & Patrick Honohan & Fabio Schiantarelli, 2000. "Does Financial Reform Raise or Reduce Saving?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 239-263, May.
  9. Christopher A. Sims, 1996. "Macroeconomics and Methodology," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 105-120, Winter.
  10. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  11. Ronald MacDonald & Luca Antonio Ricci, 2003. "Estimation of the Equilibrium Real Exchange Rate for South Africa," IMF Working Papers 03/44, International Monetary Fund.
  12. Chevalier, Judith A & Scharfstein, David S, 1996. "Capital-Market Imperfections and Countercyclical Markups: Theory and Evidence," American Economic Review, American Economic Association, vol. 86(4), pages 703-25, September.
  13. Clements, Michael P & Hendry, David F, 1995. "Macro-economic Forecasting and Modelling," Economic Journal, Royal Economic Society, vol. 105(431), pages 1001-13, July.
  14. Janine Aron & John Muellbauer, 2002. "Interest Rate Effects on Output: Evidence from a GDP Forecasting Model for South Africa," Economics Series Working Papers WPS/2002-04, University of Oxford, Department of Economics.
  15. David F. Hendry & Hans-Martin Krolzig, 1999. "Improving on 'Data mining reconsidered' by K.D. Hoover and S.J. Perez," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 202-219.
  16. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  17. Razin, Assaf & Yuen, Chi-Wa, 2002. "The 'New Keynesian' Phillips curve: closed economy versus open economy," Economics Letters, Elsevier, vol. 75(1), pages 1-9, March.
  18. Paul G. Fisher & Gunnar BÅrdsen, 1999. "Economic theory and econometric dynamics in modelling wages and prices in the United Kingdom," Empirical Economics, Springer, vol. 24(3), pages 483-507.
  19. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  20. Marvin J. Barth III & Valerie A. Ramey, 2000. "The Cost Channel of Monetary Transmission," NBER Working Papers 7675, National Bureau of Economic Research, Inc.
  21. Brayton, Flint & Levin, Andrew & Lyon, Ralph & Williams, John C., 1997. "The evolution of macro models at the Federal Reserve Board," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 43-81, December.
  22. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
  23. Aron, Janine & Ayogu, Melvin, 1997. "Foreign Exchange Market Efficiency Tests in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 150-92, Supplemen.
  24. Janine Aron & Ibrahim Elbadawi & Brian Kahn, 1997. "Determinants of the real exchange rate in South Africa," Economics Series Working Papers WPS/1997-16, University of Oxford, Department of Economics.
  25. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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