Africana Periodical Literature 
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 Periodical article |
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| Title: | Thinking like a governor: central banking under an inflation target |
| Author: | de Wet, Walter A. |
| Year: | 2003 |
| Periodical: | South African Journal of Economics |
| Volume: | 71 |
| Issue: | 4 |
| Pages: | 792-805 |
| Language: | English |
| Geographic term: | South Africa |
| Subjects: | central banks inflation |
| External link: | https://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2003.tb00096.x/pdf |
| Abstract: | In late 2001 South Africa suffered a sharp depreciation of its currency. This resulted in inflation rising to such a level that the Reserve Bank of South Africa had to abandon its initial inflation target of 3-6 percent for 2002 and then set out to reach the target in 2003. Since the early months of 2002 the Reserve Bank increased its operational target - the 'repo rate' - several times, such that by mid-September 2002 the 'repo rate' was 400 basis points above its January 2002 level. Although sharp response from the central bank was expected at the end of 2001, many market participants disagreed with the 400 basis points increase in the 'repo rate'. This paper sets out a framework in which a central bank under an inflation-targeting regime operates, and justifies why the interest rate hikes were necessary given the present framework of the South African Reserve Bank. Section 1 examines four observations from the literature on inflation targeting, viz. credibility and dynamic inconsistency; the role of expectations; central bank independence; and money growth targets, the instruments of monetary policy and their implementation. Section 2 comments on the South African situation in the context of this framework. Bibliogr., notes, ref. [ASC Leiden abstract] |
