Forecasting Monetary Policy Rules in South Africa

This paper is the .rst one to: (i) provide in-sample estimates of linear and nonlinear Taylor rules augmented with an indicator of .nancial stability for the case of South Africa, (ii) analyse the ability of linear and nonlinear monetary policy rule speci.cations as well as nonparametric and semiparametric models in forecasting the nominal interest rate setting that describes the South African Reserve Bank (SARB) policy decisions. Our results indicate, .rst, that asset prices are taken into account when setting interest rates; second, the existence of nonlinearities in the monetary policy rule; and third, forecasts constructed from combinations of all models perform particularly well and that there are gains from semiparametric models in forecasting the interest rates as the forecasting horizon lengthens.

Commodity price shocks and macroeconomic dynamics

We analyse the transmission mechanism of commodity price shocks in emerging economies. Using a panel vector autoregression, we find that the shock leads to a real exchange rate appreciation, increases in output, inflation the nominal interest rate and the trade balance, and a fall in the unemployment rate. The transmission mechanism can be understood using a dynamic stochastic general equilibrium model of a small commodity-exporting open economy with nominal as well as search and matching frictions. We find that the conduct of monetary policy is key to both the variables’ dynamics as well as to the magnitude of Dutch disease effects

Commodity price shocks, labour market dynamics and monetary policy in small open economies

We analyse the transmission mechanism of commodity price shocks in inflation targeting emerging economies. Using a panel vector autoregression, we find that for a commodity exporter, the shock causes a real exchange rate appreciation, increases in output, inflation, the nominal interest rate and the trade balance, and a fall in the unemployment rate. The mechanism underlying the dynamics driving the VAR can be understood using a dynamic stochastic general equilibrium model. Search and matching frictions in the labour market and the conduct of monetary policy are key for the model to match the data

Analysing the effects of fiscal policy shocks in the South African economy

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The opportunistic approach to monetary policy and financial market conditions

We test the concept of the opportunistic approach to monetary policy in South Africa post-200 inflation targeting regime. The article contributes to the current debate on central banks having additional objectives over and above inflation and output by incorporating a measure of financial conditions in the modelling framework. Our findings support the two features of the opportunistic approach. First, we find that the models that include an intermediate target that reflects the recent history of inflation rather than simple inflation target improve the fit of the models. Second, the data supports the view that the South African Reserve Bank (SARB) behaves with some degree of nonresponsiveness when inflation is within the zone of discreation but react aggressively otherwise. Recursive estimates from our preferred model reveal that overall there has been a subdued reaction to inflation, output and financial conditions amidst the increased economic uncertainty of the 2007-2009 financial crisis.http://tandfonline.com/loi/raec2