An analysis of the effectiveness of inflation targeting monetary policy framework in South Africa
Date
2019Author
Sheefeni, J. P. S.
Makuvaza, Leonard
Nyambe, Jacob M.
Metadata
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This study is premised on investigating the effectiveness of inflation targeting in South Africa. The
methods of analysis include the Vector Autoregressive model (VAR), the unit root test and
cointegration test. The analysis was conducted with the use of EViews version 9. The findings from
the study revealed that the response of inflation is not consistent with the Taylor rule hence
increases in the repo rate meant to reduce inflation actually increase the inflationary pressures in
the economy. This is due to the composition of the Consumer Price Index. Housing constitutes the
largest weight on the CPI hence this has an impact on how the Repo rate affects inflation. The
autoregression model of inflation showed that the sum of the coefficients is less than one (0.965)
showing that inflation targeting has effectively reduced the persistence of inflation in South Africa.
Thus monetary framework in South Africa seems to be effective and should thus be advanced for
wider economic benefit.