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Assessing the effectiveness of the monetary policy instrument during the inflation targeting period in South Africa

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  • Bonga-Bonga, Lumengo

Abstract

This paper assesses how inflation reacts to monetary policy shocks in South Africa during the inflation targeting period by making use of the structural vector error correction model (SVECM). The results of the impulse response function obtained from the SVECM show that, on average, contractionary monetary policy that intends to curb inflationary pressure has been impotent in South Africa. However, the contractionary monetary policy shocks managed to reduce output. The paper suggests that it is time a dual target, inflation and output, be considered in South Africa to avoid the harm caused on output growth from monetary policy actions related to the constraint of inflation targeting.

Suggested Citation

  • Bonga-Bonga, Lumengo, 2017. "Assessing the effectiveness of the monetary policy instrument during the inflation targeting period in South Africa," MPRA Paper 80794, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:80794
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    2. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series,in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372 Central Bank of Chile.
    3. Lumengo Bonga-Bonga & Alain Kabundi, 2011. "Monetary Policy Action and Inflation in South Africa: An Empirical Analysis," The African Finance Journal, Africagrowth Institute, vol. 13(2), pages 25-37.
    4. Rangan Gupta & Kibii Komen, 2008. "Time Aggregation and the Contradictions with Causal Relationships: Can Economic Theory Come to the Rescue?," Working Papers 200802, University of Pretoria, Department of Economics.
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    More about this item

    Keywords

    inflation targeting policy; structural vector error correction model; South Africa;

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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