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Policy regime changes and central bank prefernces

This paper establishes whether central bank preferences are related to governors’ preferences when there is a change in policy regime. We use a time-varying parameter approach that allows the policy preferences to vary over the sample period. The results show that the policy parameters exhibit significant changes and that the South African Reserve Bank places more weight on output relative to inflation over the period 2000 and 2007. The dynamic responses of output and inflation under different central bank governors show different outcomes. This is as a result of changes in central bank preferences and not necessarily because of different governors at the central bank. We find that policy changes have an important effect on the weight a central bank attaches to inflation and output stability and governors preferences are linked to policy regime.
Working paper 752
1 July 2018
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