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What is the SARB's inflation targeting policy, and is it appropriate?

  • Ellyne, Mark
  • Veller, Carl
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    Since its adoption of inflation targeting in 2000, the South African Reserve Bank has been accused of placing too great an emphasis on meeting its inflation target, and too small an emphasis on the high rate of unemployment in the country. On the other hand, the SARB has regularly missed its inflation target. We attempt to characterise the SARB's inflation targeting policy by analysing the Bank's interest rate setting behaviour before and after the adoption of inflation targeting, making use of Taylor-like rules to determine whether the SARB has emphasised inflation, the output gap, the real exchange rate, and asset price deviations in its monetary policy. We find that the SARB has significantly changed its behaviour with the adoption of inflation targeting, and show that the SARB runs a very flexible inflation targeting regime, with strong emphasis on the output gap. Indeed, we find evidence that the emphasis on inflation is too low, and potentially conducive to instability in the inflation process.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42134.

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    Date of creation: 30 Aug 2011
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    Handle: RePEc:pra:mprapa:42134
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