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Forecasting Monetary Rules in South Africa

Author

Listed:
  • Ruthira Naraidoo

    () (Department of Economics, University of Pretoria)

  • Ivan Paya

    () (Department of Economics, Lancaster University)

Abstract

This paper is the ?rst one to analyze the ability of linear and nonlinear monetary policy rule specifications as well as nonparametric and semiparametric models in forecasting the nominal interest rate setting that describes the South African Reserve Bank (SARB) policy decisions. We augment the traditional Taylor rule with indicators of asset prices in order to account for potential financial stability targets implicitly considered by the SARB. Using an in-sample period of 1986:01 to 2004:12, we compare the out-of-sample forecasting ability of the models over the period 2005:01 to 2008:12. Our results indicate that the semiparametric models perform particularly well relative to the Taylor rule models currently dominating the monetary policy literature, and that nonlinear Taylor rules improve their performance under the new monetary regime.

Suggested Citation

  • Ruthira Naraidoo & Ivan Paya, 2010. "Forecasting Monetary Rules in South Africa," Working Papers 201007, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201007
    as

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    References listed on IDEAS

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    12. Aksoy, Yunus & Orphanides, Athanasios & Small, David & Wieland, Volker & Wilcox, David, 2006. "A quantitative exploration of the opportunistic approach to disinflation," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1877-1893, November.
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    Cited by:

    1. Ellyne, Mark & Veller, Carl, 2011. "What is the SARB's inflation targeting policy, and is it appropriate?," MPRA Paper 42134, University Library of Munich, Germany.

    More about this item

    Keywords

    Monetary policy; Taylor rules; nonlinearity; nonparametric; semiparametric; forecasting;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • 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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