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Labour Market and Monetary Policy in South Africa

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  • Vincent Dadam and Nicola Viegi

Abstract

This paper analyses the in‡fluence of the South African labour market on the conduct of monetary policy. Because of the weak response of wages to changes in employment, the South African Reserve Bank is confronted by an unfavourable short run unemployment-in‡flation trade off that complicates the implementation of the in‡flation targeting framework. First we provide some reduced form evidence by estimating a form of the traditional wage Phillips curve, showing the weak relationship between wage dynamics and unemployment in South Africa. We then con…rm this result by presenting an estimation of a structural model of the South African economy and give a quantitative assessment of the constraint imposed by the labour market on monetary policy. Finally we interpret these results in a strategic framework, analysing the role that in‡flation targeting might play in either improving coordination, or worsening the interaction between trade unions and Central Bank objectives.

Suggested Citation

  • Vincent Dadam and Nicola Viegi, 2015. "Labour Market and Monetary Policy in South Africa," Working Papers 551, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:551
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    References listed on IDEAS

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    1. Abhijit Banerjee & Sebastian Galiani & Jim Levinsohn & Zoë McLaren & Ingrid Woolard, 2008. "Why has unemployment risen in the New South Africa?1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(4), pages 715-740, October.
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    Cited by:

    1. Ken Miyajima & James Yetman, 2019. "Assessing inflation expectations anchoring for heterogeneous agents: analysts, businesses and trade unions," Applied Economics, Taylor & Francis Journals, vol. 51(41), pages 4499-4515, September.
    2. Georgiadis, Georgios & Jančoková, Martina, 2017. "Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks," Working Paper Series 2082, European Central Bank.
    3. Lumengo Bonga-Bonga & Ntsakeseni Letitia Lebese, 2019. "Rethinking The Current Inflation Target Range In South Africa," Journal of Developing Areas, Tennessee State University, College of Business, vol. 53(2), pages 13-27, April-Jun.
    4. Laurence Harris & Shannon Bold, 2018. "Identifying monetary policy rules in South Africa with inflation expectations and unemployment," WIDER Working Paper Series 43, World Institute for Development Economic Research (UNU-WIDER).
    5. Andrew Kerr, 2018. "Job Flows, Worker Flows and Churning in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 86(S1), pages 141-166, January.

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    Keywords

    Labour market; Montetary Policy; South Africa;

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