Inflation Mechanisms, Expectations and Monetary Policy

4 Pages Posted: 3 Dec 2016

See all articles by South African Reserve Bank (SARB)

South African Reserve Bank (SARB)

Government of the Republic of South Africa - South African Reserve Bank

Date Written: November 2016

Abstract

This note identifies supply factors, particularly the exchange rate, as key drivers of inflation in South Africa. Demand factors play a negligible role, with a flat Phillips curve apparent since the inception of the country’s inflation targeting regime. The Phillips curve flattened further with the Global Financial Crisis, which suggests that inflation is now even less responsive to demand factors. In addition, the note discusses the adaptive nature of the inflation expectations of price setters, which have eventually become well anchored towards the end of the sample, albeit at the upper bound of the official target band.

Full Publication: Inflation Mechanisms, Expectations and Monetary Policy

Keywords: Inflation, exchange rate pass-through, inflation expectations, Phillips curve

JEL Classification: E31, E52, E58

Suggested Citation

(SARB), South African Reserve Bank, Inflation Mechanisms, Expectations and Monetary Policy (November 2016). BIS Paper No. 89x, Available at SSRN: https://ssrn.com/abstract=2872415

South African Reserve Bank (SARB) (Contact Author)

Government of the Republic of South Africa - South African Reserve Bank

Monetary Policy Research Unit
Research Department
Pretoria
South Africa

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