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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:The sensitivity of South African inflation expectations to surprises
Author:Reid, MoniqueISNI
Year:2009
Periodical:South African Journal of Economics
Volume:77
Issue:3
Pages:414-429
Language:English
Geographic term:South Africa
Subjects:inflation
monetary policy
External link:https://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2009.01219.x/pdf
Abstract:Price stability is widely recognized as the primary goal of modern monetary policy, and the management of private sector inflation expectations has become an essential channel through which this goal is achieved. This evaluation aims to improve the understanding of how the sensitivity of private sector inflation expectations to macroeconomic surprises in South Africa compares internationally, as this provides an indication of the contribution of monetary policy in South Africa to anchoring inflation expectations. If a central bank is credible, the financial markets should react less sensitively to macroeconomics surprises, because they trust the central bank to manage these incidents and achieve the objectives they communicated over the medium to long term. In this paper, the methodology of R. Gürkaynak et al. is adopted in order to measure the sensitivity of South African inflation expectations to surprises. A comparison of South Africa's results with those of countries in the original studies supports the contention that the SARB (South African Reserve Bank) has encouraged inflation expectations to be relatively insensitive to macroeconomic surprises, and offers support for the inflation-targeting framework as a means to help anchor inflation expectations. Bibliogr., notes, ref., sum. [Journal abstract]
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