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Review of Monetary Policy in South Africa since 1994

  • Janine Aron
  • John Muellbauer

This paper reviews the design and performance of monetary policy in South Africa (SA) during 1994-2004. Quantitative indexes of transparency reveal a strong rise in the transparency and accountability of monetary policy between 1994 and 2004. Inflation and interest rate expectations data and forward interest rate data are used to demonstrate the incerased credibility and reasonable predictability of monetary policy since adopting inflation targeting in 2000. The SA Reserve Bank`s view on monetary policy transmission channels is discussed, and its recent forecasting performance is evaluated. We find that monetary policy decisions taken in response to external and domestic shocks under inflation targeting have significantly improved relative to the preceding framework, though data quality has been a constraint. Further, inflation targeting has not disadvantaged potential investment in terms of the level of tax adjusted real interest rates. Finally, the important role for complementary policies to support monetary policy is motivated.

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File URL: http://www.csae.ox.ac.uk/workingpapers/pdfs/2006-07text.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/2006-07.

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Date of creation: 01 Jul 2006
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Handle: RePEc:oxf:wpaper:wps/2006-07
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  1. 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.
  2. Janine Aron & John Muellbauer, 2004. "Construction of CPIX Data for Forecasting and Modelling in South Africa," CSAE Working Paper Series 2004-09, Centre for the Study of African Economies, University of Oxford.
  3. Janine Aron & John Muellbauer, 2002. "Estimating Monetary Policy Rules for South Africa," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 15, pages 427-476 Central Bank of Chile.
  4. Maclennan, Duncan & Muellbauer, John & Stephens, Mark, 1999. "Asymmetries in Housing and Financial Market Institutions and EMU," CEPR Discussion Papers 2062, C.E.P.R. Discussion Papers.
  5. Morris, Stephen & Shin, Hyun Song, 2004. "Coordination risk and the price of debt," European Economic Review, Elsevier, vol. 48(1), pages 133-153, February.
  6. V. Vance Roley & Gordon H. Sellon, Jr., 1995. "Monetary policy actions and long-term interest rates," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-89.
  7. Martin Grandes & Marcel Peter & Nicolas Pinaud, 2003. "The Currency Premium and Local-Currency Denominated Debt Costs in South Africa," OECD Development Centre Working Papers 230, OECD Publishing.
  8. Bean, Charles & Larsen, Jens D. J. & Nikolov, Kalin, 2002. "Financial frictions and the monetary transmission mechanism: theory, evidence and policy implications," Working Paper Series 0113, European Central Bank.
  9. Richard H. Clarida & Mark Gertler, 1997. "How the Bundesbank Conducts Monetary Policy," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 363-412 National Bureau of Economic Research, Inc.
  10. Eijffinger, Sylvester C.W. & Geraats, Petra M., 2006. "How transparent are central banks?," European Journal of Political Economy, Elsevier, vol. 22(1), pages 1-21, March.
  11. Janine Aron & John Muellbauer, 2006. "Housing Wealth, Credit Conditions and Consumption," Economics Series Working Papers WPS/2006-08, University of Oxford, Department of Economics.
  12. Janine Aron & Ibrahim Elbadawi, 1999. "Reflections on the South African rand crisis of 1996 and its consequences," CSAE Working Paper Series 1999-13, Centre for the Study of African Economies, University of Oxford.
  13. Aron, Janine & Muellbauer, John, 2002. "Interest Rate Effects on Output: Evidence from a GDP Forecasting Model for South Africa," CEPR Discussion Papers 3595, C.E.P.R. Discussion Papers.
  14. Janine Aron & John Muellbauer, 2000. "Financial Liberalization, Consumption and Debt in South Africa," Economics Series Working Papers WPS/2000-22, University of Oxford, Department of Economics.
  15. 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.
  16. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
  17. J. McCarthy, 1999. "Pass-through of exchange rates and import prices to domestic inflation in some industrialised economies," BIS Working Papers 79, Bank for International Settlements.
  18. Janine Aron & John Muellbauer & Benjamin W. Smit, 2004. "A Structural Model of the Inflation Process in South Africa," Economics Series Working Papers WPS/2004-08, University of Oxford, Department of Economics.
  19. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," Working Papers 97-32, C.V. Starr Center for Applied Economics, New York University.
  20. Charles Goodhart, 2005. "The Interest Rate Conditioning Assumption," FMG Discussion Papers dp547, Financial Markets Group.
  21. Obstfeld, Maurice, 1996. "Models of Currency Crises with Self-fulfilling Features," CEPR Discussion Papers 1315, C.E.P.R. Discussion Papers.
  22. Stephen G. Cecchetti, 1999. "Legal structure, financial structure, and the monetary policy transmission mechanism," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 9-28.
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