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The sensitivity of South African inflation expectations to surprises

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  • Monique Reid

    (Department of Economics, University of Stellenbosch)

Abstract

Price stability is widely recognised as the primary goal of modern monetary policy, and the management of private sector inflation expectations has become an essential channel through which this goal is achieved. This evaluation aims to improve the understanding of how the sensitivity of private sector inflation expectations to macroeconomic surprises in South Africa compares internationally, as this provides an indication of the contribution of monetary policy in South Africa to anchoring inflation expectations. If a central bank is credible, the financial markets should react less sensitively to macroeconomics surprises, because they trust the central bank to manage these incidents and achieve the objectives they communicated over the medium to long term. In this paper, the methodology of Gurkaynack, Sack and Swanson (2005a) is adopted in order to measure the sensitivity of South African inflation expectations to surprises. A comparison of South Africa’s results with those of countries in the original studies supports the contention that the SARB (South African Reserve Bank) has encouraged inflation expectations to be relatively insensitive to macroeconomic surprises, and offers support for the inflation targeting framework as a means to help anchor inflation expectations.

Suggested Citation

  • Monique Reid, 2009. "The sensitivity of South African inflation expectations to surprises," Working Papers 16/2009, Stellenbosch University, Department of Economics.
  • Handle: RePEc:sza:wpaper:wpapers88
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    References listed on IDEAS

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    6. H.a. Mitchell‐innes & M.j. Aziakpono & A.p. Faure, 2007. "Inflation Targeting And The Fisher Effect In South Africa: An Empirical Investigation," South African Journal of Economics, Economic Society of South Africa, vol. 75(4), pages 693-707, December.
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    Citations

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    Cited by:

    1. Monique Reid & Stan Du Plessis, 2010. "Loud And Clear? Can We Hear When The Sarb Speaks?," South African Journal of Economics, Economic Society of South Africa, vol. 78(3), pages 269-286, September.
    2. Kose, Ayhan & Matsuoka, Hideaki & Panizza, Ugo & Vorisek, Dana, 2019. "Inflation Expectations: Review and Evidence," CEPR Discussion Papers 13601, C.E.P.R. Discussion Papers.
    3. Reid, Monique & Siklos, Pierre & Guetterman, Timothy & Du Plessis, Stan, 2021. "The role of financial journalists in the expectations channel of the monetary transmission mechanism," Research in International Business and Finance, Elsevier, vol. 55(C).
    4. Moura, Marcelo L. & Gaião, Rafael L., 2014. "Impact of macroeconomic surprises on the Brazilian yield curve and expected inflation," The North American Journal of Economics and Finance, Elsevier, vol. 27(C), pages 114-144.
    5. Rangan Gupta & Monique Reid, 2013. "Macroeconomic surprises and stock returns in South Africa," Studies in Economics and Finance, Emerald Group Publishing, vol. 30(3), pages 266-282, July.
    6. Sonali Das & Rangan Gupta & Patrick Kanda & Monique Reid & Christian Tipoy & Mulatu Zerihun, 2014. "Real interest rate persistence in South Africa: evidence and implications," Economic Change and Restructuring, Springer, vol. 47(1), pages 41-62, February.
    7. Tumisang Loate & Ekaterina Pirozhkova & Nicola Viegi, 2021. "Sailing into the Wind evaluating the near future of Monetary Policy in South Africa," Working Papers 11006, South African Reserve Bank.
    8. Christian Pierdzioch & Monique B. Reid & Rangan Gupta, 2018. "On the directional accuracy of inflation forecasts: evidence from South African survey data," Journal of Applied Statistics, Taylor & Francis Journals, vol. 45(5), pages 884-900, April.
    9. Manqoba Ntshakala & Laurence Harris, 2018. "The information content of the yield spread about future inflation in South Africa," WIDER Working Paper Series wp-2018-63, World Institute for Development Economic Research (UNU-WIDER).
    10. Monique Reid & Pierre Siklos, 2020. "Building Credibility and Influencing Expectations The Evolution of Central Bank Communication," Working Papers 10144, South African Reserve Bank.
    11. Laurence Harris & Manqoba Ntshakala, 2018. "The information content of the yield spread about future inflation in South Africa," WIDER Working Paper Series 63, World Institute for Development Economic Research (UNU-WIDER).
    12. Monique B Reid & Pierre L Siklos, 2021. "How firms and experts view the Phillips curve evidence from individual and aggregate data from South Africa," Working Papers 11003, South African Reserve Bank.

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    More about this item

    Keywords

    South Africa; Inflation targeting; Macroeconomic surprises; Sensitivity of inflation expectations;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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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