The Effects of Expectation Inflation on Aggregate Demand: Examining the South African Inflation Expectation Channel of South African Monetary Policy

Background: Monetary policy in South Africa is carried out by the South African Reserve Bank (SARB) with the aim of keeping inflation within a target range of 3% – 6%. The SARB uses a variety of models to aid them, with the core model being the most significant. Aim: The primary aim of this research is to determine whether the reverse yield gap (RYG) contains information that could be useful to the SARB when making monetary policy decisions. Setting: The authors found no evidence that similar studies on the RYG have previously been done in the South African context. Since the yield curve has been found to be significant in South Africa at forecasting economic growth, yet insignificant in Europe, the results for this research may too be different to the global experience. Methods: The authors tested for linear relationships between the RYG and economic growth and inflation over the period 1960–2014. Results: The results indicate that a slight linear relationship may exist in the case of economic growth, with the RYG based on earnings yields showing better out-of-sample forecasting abilities. Further investigation indicates that the linear relationship is stronger during times of economic upturn. The results for inflation forecasting, however, show no signs of a reasonable linear relationship. Conclusion: There is evidence for the SARB to consider whether the RYG can replace other economic variables in its core model without loss of predictive ability. Interestingly, this study found evidence to suggest that the RYG has an inverse relationship to future economic growth in South Africa, which is not what was expected.

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The Effects of South Africa's Unexpected Monetary Policy Shocks in the Common Monetary Area

10.18122/td/1668/boisestate ◽

2020 ◽

Author(s):

Bonang N. Seoela

Keyword(s):

South Africa ◽

Monetary Policy ◽

South African ◽

Member Country ◽

The South ◽

Economic Output ◽

Lending Rate ◽

Domestic Credit ◽

The Common ◽

Repo Rate

The Common Monetary Area (CMA) is a multilateral agreement that provides a framework for a fixed exchange rate regime between the South-African Rand and the currencies of Lesotho, Eswatini, and Namibia (LEN). The nature of the arrangement restrains the LEN countries from exercising independent discretionary monetary policy. As a result, they must rely on the South African authorities for policy formulation and implementation. Interest rates in the LEN countries cannot deviate too far from those in South Africa. Given this limited scope for monetary policy in the LEN countries, this study investigates how each member country adjusts to shocks to the South African monetary policy instrument. Specifically, this paper uses a structural vector autoregressive (SVAR) model to examine how economic output, inflation, narrow money supply, domestic credit, and lending rate spread in each member country react to shocks experienced in the South African repo rate using monthly data from the period 2000M2 to 2018M12. The main findings indicate that a positive shock to the South African repo rate tends to be followed by a decline in economic output and an appreciation in price levels at the 90 percent confidence interval for all CMA countries. Our results have also shown that there is an asymmetric response in money supply, domestic credit and lending rate spread between the LEN countries and South Africa, to a positive repo rate shock. These results suggest that policymakers in LEN countries must implement additional policy measures to circumvent the negative impact of South Africa's monetary policy on their financial sectors.

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Political independence of the South African Reserve Bank: Managing interest rates

Acta Commercii ◽

10.4102/ac.v13i1.203 ◽

2013 ◽

Vol 13 (1) ◽

Author(s):

Ewert P.J. Kleynhans ◽

Ryan Meintjes

Keyword(s):

Monetary Policy ◽

Interest Rates ◽

South African ◽

External Input ◽

The South ◽

Political Independence ◽

Reserve Bank ◽

The Subject ◽

The Relationship ◽

Independence Movements

Purpose: The purpose of this article is to determine whether the South African Reserve Bank (SARB) is politically independent and able to operate without undue external influence.Problem investigated: The SARB is under increasing pressure to shift its monetary policy stance in order to boost the country’s competitiveness. Whether external demands have compromised its independence at times has been the subject of debate.Methodology: The study comprised a literature review and econometric analysis of the Bank’s independence. Movements in interest rates were used as an indicator of dependence. The analysis was between actual interest rates in South Africa over the past two decades, and a model of what interest rates should have been during this period, with reference to Taylor’s Rule. Differences between the two were assumed to expose shortcomings in the direction of South Africa’s monetary policy and therefore some degree of dependence.Findings and implications: Movement of the two sets of rates correlated, which suggests SARB independence. The findings did not reveal harmony between the levels of the two sets of rates. However, the latter correlation was not the focus of this study.Originality and value of the research: This study makes an important contribution, as few authors researched the relationship between interest rates and the SARB’s independence scientifically. The study is well timed as the SARB’s independence debate has reached concerning levels.Conclusion: The results suggest almost no level of dependence – which does not necessarily imply that the SARB is entitled to reject all external input, but rather that it can prioritise its objective of price stability over other concerns.

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A tale of two governors: Monetary policy and the South African economy 1981–1999

South African Journal of Economic History ◽

10.1080/10113430109511133 ◽

2001 ◽

Vol 16 (1-2) ◽

pp. 47-73 ◽

Cited By ~ 3

Author(s):

Duncan Hodge

Keyword(s):

Monetary Policy ◽

South African ◽

The South

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Monetary Policy Transmission Mechanisms

Baikal Research Journal ◽

10.17150/2411-6262.2020.11(4).9 ◽

2020 ◽

Vol 11 (4) ◽

Author(s):

Sergey Kurgansky

Keyword(s):

Monetary Policy ◽

Aggregate Demand ◽

Bank Lending ◽

Bank Lending Channel ◽

Policy Makers ◽

Inflation Expectation ◽

Lending Channel ◽

Transmission Mechanisms ◽

Theoretical Approaches ◽

Policy Transmission

Policy-makers must be able to accurately assess the effects of their policies on the economy, especially in the period of economic instability. To do this, they need to study the mechanisms through which monetary policy affect the economic activity. The article examined theoretical approaches and ways (or channels), in which monetary policy effect aggregate demand and other economic indicators. The article showed that efficiency of the transmission mechanism and its channels are determined by the state-of-the-art of the financial system. In Russia the following channels play a significant role: interest-rate, exchange rate, bank lending channel and inflation expectation channels.

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