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Why Higher Trend Inflation Makes Monetary Policy More Costly in South Africa

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Listed:
  • Hylton Hollander

  • Clinton Joel

Abstract

Most inflation-targeting central banks target a small but positive underlying rate of inflation, often called trend inflation1. Yet its appropriate level remains uncertain. The extended deliberation in South Africa to move from a 3 - 6% target band to a 3% point target (with a ±1% tolerance band) illustrates this tension. In our working paper (Trend Inflation and the Costs of Price Dispersion in a Fiscal DSGE Model), we examine the role of trend inflation in an economy and argue that, all else equal, lower trend inflation is better for the economy.

Suggested Citation

  • Hylton Hollander & Clinton Joel, "undated". "Why Higher Trend Inflation Makes Monetary Policy More Costly in South Africa," ERSA Working Paper Series v::y:2026:i::p:8:id:275, Economic Research Southern Africa.
    • Handle: RePEc:rza:ersawp:v::y:2026:i::p:8:id:275
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    File URL: https://ersawps.org/index.php/working-paper-series/article/view/275/177
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    References listed on IDEAS

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    1. Hylton Hollander & Roy Havemann & Daan Steenkamp, 2024. "The macroeconomics of establishing a basic income grant in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 92(1), pages 57-68, March.
    2. Bhatnagar, Aryaman, 2023. "Monetary policy with non-Ricardian households," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 12-26.
    3. Garín, Julio & Lester, Robert & Sims, Eric, 2016. "On the desirability of nominal GDP targeting," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 21-44.
    4. Jordi Galí & J. David López-Salido & Javier Vallés, 2007. "Understanding the Effects of Government Spending on Consumption," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 227-270, March.
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