E58

Central Banks and Their Policies

Nominal GDP Targeting and the Monetary Policy Framework

A nominal income target may provide credibility to a commitment to keep real interest rates exceptionally low, until a target output level is reached -–even if expected inflation rises in the interim–- in economies where nominal interest rates are effectively at the zero lower bound, which is not the South African case. There are practical difficulties with adopting nominal income targeting as the monetary policy framework. These include issues on the choice of a target level, risk of unanchored in‡ation expectations, and increased likelihood of error due to data uncertainty and revisions.

Interaction of Formal and Informal Financial Markets in Quasi-Emerging Market Economies

The primary objective of this paper is to investigate the interaction of formal and informal financial markets and their impact on economic activity in quasi-emerging market economies. Using a four-sector dynamic stochastic general equilibrium model with asymmetric information in the formal financial sector, we come up with three fundamental findings.

Inflation Expectations of the Inattentive General Public

The majority of academic research on central bank communication has analysed a central bank’s audience as a single group. Analyses, especially empirical research have focused almost exclusively on a central bank’s interaction with the financial markets, facilitated by the availability of high-quality, high-frequency asset price data. In practice, a central bank’s audience is heterogeneous, and recognising this is advantageous for both modelling purposes and effective central bank communication.

Will the SARB always succeed in fighting inflation with contractionary policy?

The conventional view is that a monetary policy shock has both supply-side and demand-side effects, at least in the short run. Barth and Ramey (2001) show that the supply-side effect of a monetary policy shock may be greater than the demand-side effect. We argue that it is crucial for monetary authorities to understand whether an increase in expected future inflation is due to supply shocks or demand shocks before applying contractionary policy to forestall inflation.

Talking to the inattentive public: How the media translates the Reserve Bank’s communications

Central bank communication is widely recognised as crucial to the implementation of monetary policy. This communication should enhance a central bank’s management of the inflation expectations of the financial markets as well as the general public — the latter being a part of the central bank’s audience that has received relatively little research attention.

Bank concentration and the interest rate pass-through in Sub-Saharan African countries

This study investigates the link between bank concentration and interest rate pass-through (IRPT) in four sub-Saharan countries. It also analyses whether there is asymmetry in IRPT and whether such asymmetry is related to changes in bank concentration. By applying a number of econometric methods including Asymmetric Error Correction Models, Mean Adjustment Lag (MAL) models and Autoregressive Distributed Lag models on monthly data for the period 1994-2007, the study found some evidence of a relationship between bank concentration and IRPT in all four countries.

Dynamic Effects of Monetary Policy Shocks in Malawi

This paper sets out to investigate the process through which monetary policy affects economic activity in Malawi. Using innovation accounting in a structural vector autoregressive model, it is established that monetary authorities in Malawi employ hybrid operating procedures and pursue both price stability and high growth and employment objectives. Two operating targets of monetary policy are identified, viz., bank rate and reserve money, and it is demonstrated that the former is a more effective measure of monetary policy than the latter.

Forecasting Monetary Policy Rules in South Africa

This paper is the first one to: (i) provide in-sample estimates of linear and nonlinear Taylor rules augmented with an indicator of financial stability for the case of South Africa, (ii) analyse the ability of linear and nonlinear monetary policy rule specifications as well as nonparametric and semiparametric models in forecasting the nominal interest rate setting that describes the South African Reserve Bank (SARB) policy decisions.

A Comparison of Inflation Expectations and Inflation Credibility in South Africa: Results from Survey Data

This paper reports a comparison of South African household inflation expectations and inflation credibility surveys undertaken in 2006 and 2008. The objective is to test for possible feed through between inflating credibility and inflation expectations. It supplements similar earlier research that focused only on the 2006 survey results.

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