Does inflation targeting effectively combat exchange rate. This bibliography was generated on cite this for me on sunday, july 31, 2016. Ghana is only the second country in subsaharan africa, after south africa, to adopt such a regime. In it he argues that the adoption of inflation targeting will lead to a more effective monetary policy and should minimize the social and economic cost of. In addition, the paper argues that improved inflation performance is not only measured in terms of a lower inflation. Jul 04, 2019 the remainder of the countries 10, including south africa specify an inflation target range.
There is evidence of growing concern regarding south africa s monetary policy framework. Over time, inflation targeting has proved to be a flexible framework that has been resilient in changing circumstances, including during the recent global financial crisis. Merits of inflation targeting in south africa 16 2. South africa adopted inflation targeting it as a formal framework for monetary policy in february 2000. These issues are examined in greater detail for the two african countries which have formally adopted inflation targeting, south africa and ghana. In south africa, the initial target range of 3 to 6 percent was set by the minister of finance in consultation with the sarb. An empirical investigation of their monetary policy framework. How has inflation targeting affected monetary policy in. Research institute a critique of inflation targeting and an. Conference on fourteen years of inflation targeting in south africa and the challenge of a changing mandate october 3031, 2014 abstract inflation targeting has become the predominant monetary approach across the globe. An analysis of perspectives on inflation targeting in south africa by vukani patrick ndaba 206512816 a dissertation submitted in partial fulfillment of the requirements for the degree of masters of business administration in the graduate school of business supervisor. There is no obvious theoretical consensus that inflation targeting could affect output growth. Integrated inflation targeting iii abstract this book provides a thorough assessment of recent experiences with inflation targeting it, the challenges it has faced since the global financial crisis, and ways in which these challenges have been, or should be, addressed. Of course, no one wants to have an inflation target that is too high either, as inflation costs can be considerable to read more about the costs of inflation, please see my answer of march 2006.
The sarb has the duty to protect the value of the domestic currency while maintaining price stability. Lumkile mondi an employmenttargeted economic program for. Pdf inflation targeting monetary policy and unemployment. Inflation becomes the primary and sole mandate of sarb, with a freely floating exchange rate. Specifically, the it regime in south africa aims at maintaining the consumer price. Inflation targeting and its impact on monitory policy. The assumption is that the best that monetary policy can do to support longterm growth of the economy is to maintain price stability, and price stability is achieved by controlling inflation.
School of oriental and african studies inflationtargeting in. Mavikela department of economics, faculty of business and economic studies, nelson mandela metropolitan university, port elizabeth, south africa, 6031. Assessing nominal gdp targeting in the south african. Mhaka department of economics, faculty of business and economic studies, nelson mandela. The paper employs data that have been corrected for the 1980 2009 period. Exchange rate volatility, ghana, hedging strategy, inflation targeting, tgarch, south africa.
Annual targets were announced at the outset without a specific indication of the full disinflation path. Pdf inflation targeting monetary policy and unemployment in. A bayesianestimated model of inflation targeting in south africa. Pdf an analysis of the effectiveness of inflation targeting. There is evidence of growing concern regarding south africa s. The william davidson institute at the university of michigan inflation targeting in brazil, chile and south africa. The observed absence of second round effects brian kantor th 19 august 2011 investec wealth and investment hakon kavli university of cape town 1. Since 1990, inflation targeting has been adopted by many industrialized countries new zealand, canada, the united kingdom, sweden, israel, australia and switzerland, by several emerging market countries chile, brazil, korea, thailand, and south africa and by several transition countries czech republic, poland and hungary. Identifying monetary policy rules in south africa with. In the 1980s inflation in south africa accelerated to 14. The appropriateness of inflation targeting in south africa is examined. South africa, monetary policy, inflation targeting authors email.
In may 2007, ghana formally adopted an inflation targeting framework for its monetary policy, announcing price stability as the central banks primary objective. Inflation, output and monetary policy in south africa. These are the sources and citations used to research inflation targeting in south africa. In a very real sense, we are all inflation targeters now. Policy should recognize that high rates of inflation can have significant costs, but that short of that, policy must. Is there a case for formal inflation targeting in subsaharan africa. Although many african countries have inflation targets, they have not implemented a policy of formal inflation targeting. The primary element of inflation targeting is a public commitment by the central bank of south africa to achieve an explicit numerical inflation target bernanke. In practice, inflation targets in developed economies are usually. The south african government in coordination with the sarb sets an inflation target based on the consumer price index for all metropolitan areas, excluding interest rates on mortgages bonds cpix. The discussion is conducted income countries from the perspective of middle. This paper tackles the monetary policy performance in brazil, chile and south africa under inflation targeting framework. During the first period, from 1980 to 1989, monetary policy was not successful in containing inflation. Inflation targeting in south africa was formally introduced on 23 february 2000 with the announcement of a 3 to 6 per cent target for 2002.
In south africa, formal inflation targeting was adopted by south african reserve bank sarb in the february of 2000, with an objective of maintaining cpix1 inflation between the target band of 3 percent to 6 percent by 2002, using discretionary changes in repurchase repo rate. South africa has adopted flexible inflation targeting, wherein considerations for other macroeconomic variables are prioritized. At that time, cpix inflation the rate we target stood at 7 per cent. The use of an inflation target range or an inflation target point with a range around it, as is the case in 21 countries, allows some flexibility in the application of monetary policy. For the purpose of this model the ppi is the most suitable, because as mentioned in bhandari and frankel 2015 the model focusses on the inflation that will influence domestic producers, therefore ppi is appropriate. The effects of inflation targeting strategy on the growing. The paper argues that improved inflation performance is not only measured in terms of a lower inflation rate. The central bank uses interest rates, its main shortterm monetary instrument.
The inflation targeting framework in south africa involves communication between the government treasury and the sarb in setting a target or band for the rate of inflation over a period of time. Introduction despite the increasing trend in the adoption of inflation targeting framework among the world saharan africa. The study focuses on south africa, as a model for inflation targeting and 2 mefmi countries uganda and botswana. Eager to keep inflation low, the country adopted inflation targeting as a monetary policy framework in february 2000 and specified 3%6% as the target range of inflation. There were broadly similar slowdowns in growth and accelerations in inflation in other parts of the world during the 1970s. South africa thus opted for a target range rather than a point target and in february 2000 the minister of finance announced publicly that formal inflation targeting was to be adopted in the country as the monetary policy. South africa formally adopted an inflation targeting monetary policy regime in february 2000, with the announcement of a 3 6 per cent target for 2002 onwards. Inflation targeting monetary policy, inflation volatility and. Inflation targeting monetary policy, inflation volatility and economic.
The relative merits and implications of inflation targeting for south. Advantages and disadvantages of inflation targeting 12 2. These targets are taken into account in all monetary policy decisions. We analyze the impact of inflation, growth and exchange rate on unemployment in south africa using annual data spanning 19802017. In south africa, formal inflation targeting was adopted by south african reserve bank sarb in the february of 2000, with an objective of maintaining cpix1 inflation between the target band of 3 percent to 6 percent by 2002, using discretionary changes in repurchase repo rate as its main policy instrument. International seminar on monetary policy in emerging markets, oecd, paris. South africas experiences of monetary policy within an inflation targeting policy framework monde mnyande south african reserve bank presentation to. Pdf south african monetary policy and inflation targeting. Appropriateness of inflation targeting in south africa.
Ghanas inflation target is five per cent while south africa s is. Pdf in this study we focus on the south african experience with inflation targeting. Inflation targeting in south africa bank for international settlements. The south african reserve bank sarb moved to an official inflation targeting. Inflation targeting and the global financial crisis. Inflation targeting in south africa mboweni 1999 south. Inflation indicators, cointegration, south africa, central bank and inflation targeting. Fourteen years of inflation targeting in south africa and the challenge of a changing mandate opening address by ms gill marcus, governor of the south african reserve bank, at the biennial conference of the bank fourteen years of inflation targeting in south africa and the challenge of a changing mandate, pretoria, 30 october 2014. Following the development of inflation targeting as a monetary framework, and its implementatio n by new zealands and chiles. The inflation target an inflation target was set by the minister of finance for the first time in february 2000 with an average inflation rate of between 3 and 6 per cent to be achieved for 2002. Inflation targeting involves a declaration of an inflation target. The relationship between economic growth and inflation in.
Vermeulen september 11, 2015 abstract it is often publicly contended that overly strict application of ination targeting sties employment growth in south africa, with the phillips curve often cited as seemingly authoritative reference. However, south africa has missed its set inflation targets five times over the past ten years which brings about questions regarding the effectiveness of the inflation targeting as a monetary policy framework in south africa kahn, 2010. A recent study by phiri 2010 further suggests that a midrange inflation target of 8 percent is sufficient in terms of maximizing economic growth in south africa. For recent applications of bayesian estimation methods to much more comprehensive dynamic stochastic general. The south african reserve bank sarb formally introduced flexible inflation targeting framework in. By contrast, most of the advanced countries brought inflation under. School of oriental and african studies inflationtargeting.
The data was obtained from various data sources and institutions, stats south africa and also on these websites za and. At the same time, continuous improvements in the south african reserve banks sarb inflation targeting framework strengthened its credibility and inflation. Introduction monetary policy has been under public scrutiny and has resulted to changes in its conduct and design in the past few decades. The results show that by targeting interest rates south africa and uganda are able to influence price, whilst the. To date, inflation targeting has not made inroads into african economies, with only ghana and south africa having formally adopted this policy regime. Assessing nominal gdp targeting in the south african context. A singleminded focus on inflation, especially in a country like south africa with high unemployment and underemployment, is a wrongheaded and costly approach. This paper is the text of the address delivered by the governor of the south african reserve bank at the biennial congress of the economic society of south africa, pretoria, 6 september 1999. What are the costs and benefits of inflation targeting.
The sarb explicit inflation targeting since inception has been a positive one. South africa s inflation target specifies that the reserve bank is to achieve an average rate of increas e in the cpix measure of infla tion of between 3 and 6 per cent for the year 2002 and 2003, and between 3 and 5 per cent for the years 2004 and 2005. While our key trading partners are around the 3% mark, south africa tends to ride higher at 5. Estimating the implicit inflation target of the south african. Inflation targeting is one of the key monetary frameworks that many central banks, south africa included, have adopted in conducting monetary policy. Inflation targeting in south africa wiley online library. The introduction of the inflation targeting monetary policy was expected not only to maintain the inflation rate within the target range but also reduce its volatility. Countriesa rates before and after their passage to inflation targeting strategy inflation rate before the practice of inflation targeting strategy inflation rate after the practice of inflation targeting strategy average inflation rate by the late 2011 developed countries 6,19 3,17 2,97 developing countries,11 8,40 5,35 south. The question may be asked whether the adoption of inflation targeting will lead to a more effective monetary policy sa government press. However, under the current framework, no reference is made to changes in asset prices and the impacts thereof on inflation and. To date the south african reserve bank has managed to reduce inflation to within the target band and interest rates are at alltime lows.
Their results indicated that the longhorizon method is more robust to alternative forms of time aggregation, and given this, the welfare cost of inflation in south africa for the inflation target band of 36 % was found to be between 0. Mar 01, 2017 the two most common inflation measurements in south africa are the consumer price index cpi and the producer price index ppi. A bayesianestimated model of inflation targeting in south. At the same time, continuous improvements in the south african reserve banks sarb inflation targeting framework strengthened its credibility and inflation expectations became much better anchored.
In the early 1990s, long term price stability has been regarded as the central goal for monetary policy, hence inflation targeting. In my governors address at the ordinary general meeting of shareholders of the reserve bank on 24. Inflation targeting was instituted in south africa in the early 2000s and the south african reserve bank is tasked with keeping consumer price inflation cpi between three and six percent. In practice, inflation targets in developed economies are usually set at 1% to 3% per year bernanke et. South africa implemented an explicit inflation targeting regime in 2000. In south africa, since the implementation of inflation targeting, the cpix exceeded its 6% upper bound. Using the ardl methodology we find that there is a negative long. However, in south africa inflation targeting used the cpix cpi excluding mortgage interest until 2008 when it began to target headline inflation cpi that includes food and energy. Thus monetary framework in south africa seems to be effective and should thus be advanced for wider economic benefit. Inflation targeting in brazil, chile and south africa. In the second half of 2008, south africa s inflation rate was close to 14 per cent, with a repo rate of 12 per cent. There has been an ongoing debate on whether inflation targeting is appropriate for the. The relationship between economic growth and inflation in the.
Speech by mr t t mboweni, governor of the south african reserve bank, at the bissarb reserve. Inflation targeting has been successfully practiced in a growing number of countries over the past 20 years, and many more countries are moving toward this framework. Inflation targeting in south africa like many emerging market economies, in the aftermath of the asian crisis, the south african reserve bank sarb adopted inflation rate targeting as its monetary policy in early 2000. The performance of inflation targeting in south africa south africa began implementing an explicit inflation targeting regime in february 2000. Integrated inflation targeting another perspective from. Inflation and inflation expectations in south africa. Contribution of study account for asymmetric eff 1. Inflation targeting monetary policy, inflation volatility. Congress of the economic society of south africa, pretoria, 6 september 1999. Inflation targeting is a monetary policy where a central bank follows an explicit target for the inflation rate for the mediumterm and announces this inflation target to the public. Inflation targeting is increasingly seen as the best practice for central bank policy in many economies around the world, including a growing number of developing countries.
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