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Publication Details
AFRICAN RESEARCH NEXUS
SHINING A SPOTLIGHT ON AFRICAN RESEARCH
economics, econometrics and finance
Optimal monetary policy reaction function in a model with target zones and asymmetric preferences for South Africa
Economic Modelling, Volume 28, No. 1-2, Year 2011
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Description
This paper estimates the optimal response of the SARB to deviations of inflation and output from their target values over the inflation targeting era. This is achieved using an empirical framework that allows the central bank's policy preferences to be zone-like and asymmetric. The first major finding is that the monetary authorities' response towards inflation is zone symmetric. That is, they react in a passive manner when inflation is within the target band whereas they become increasingly aggressive when it deviates from the target band. The monetary authorities also react with the same level of aggressiveness regardless of whether inflation overshoots or undershoots the inflation target band. The second major finding is that the monetary authorities' response to output fluctuations is asymmetric. That is, they react more aggressively to negative deviations of output from the potential so that they weigh business cycle recessions more than expansions. © 2010 Elsevier B.V.
Authors & Co-Authors
Naraidoo, Ruthira
South Africa, Pretoria
University of Pretoria
Raputsoane, Leroi
South Africa, Pretoria
Research Department
Statistics
Citations: 21
Authors: 2
Affiliations: 2
Identifiers
Doi:
10.1016/j.econmod.2010.09.005
ISSN:
02649993
Research Areas
Health System And Policy
Study Locations
South Africa