The sensitivity of South African inflation expectations to surprises
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.
|Date of creation:||2009|
|Contact details of provider:|| Postal: Private Bag X1, 7602 Matieland|
Fax: +27 (0)21-808 2409
Web page: http://www.ekon.sun.ac.za
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sza:wpaper:wpapers88. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Melt van Schoor)
If references are entirely missing, you can add them using this form.