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Erschienen in:
Introduction Kapitel lesen Erstes Kapitel lesen

2017 | OriginalPaper | Buchkapitel

3. The Output and Inflation Trade-off in South Africa

verfasst von : Eliphas Ndou, Nombulelo Gumata

Erschienen in: Inflation Dynamics in South Africa

Verlag: Springer International Publishing

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Abstract

The achievement of the primary objective on a sustainable basis implies tough choices regarding the output and inflation trade-off. The policy choices open to policymakers are depicted in movements along the efficient policy frontier or the Taylor curve. This chapter estimates the Taylor curve for South Africa and explores whether the curve has shifted over time. In addition, we identify periods that were associated with minimum inflation and output volatility. Evidence shows that the Taylor curve shifted inward under the inflation targeting regime relative to the pre-inflation targeting period. The implication is that the inflation and output volatilities were minimised and macroeconomic performance was superior. Furthermore, positive shocks to inflation expectations, in particular increases above 6 per cent, shift the Taylor curve outward. The policy implication is that unanchored inflation expectations result in outward shift in the Taylor curve.

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Vorheriges Kapitel The Ball Approach to Disinflation Episodes, Output Costs and Sacrifice Ratios in South Africa
Nächstes Kapitel Persistent Exchange Rate Volatility on the Taylor Curve
Fußnoten
1
Synonymous to what King (2013) refers to as the value of the constrained discretion built into the inflation targeting regime.
 
2
Cecchetti and Ehrmann (2002) argue that the economy can be hit by aggregate demand and supply shocks. Aggregate demand shocks move both inflation and output to the same direction. Supply shocks move inflation and output in the opposite direction. Since monetary policy can move output and inflation in same direction, it can be used to offset aggregate demand shocks. Hence in an aggregate supply shock authorities face a trade-off between output and inflation variability.
 
3
The equation is based on the modified Pentecôte and Rondeau (2015) and Cerra and Saxena (2008) approaches.
 
Literatur
Carney, M. (2013). Monetary policy after the fall. Remarks at the Eric J. Hanson Memorial Lecture University of Alberta, Edmonton, Alberta.
Cecchetti, S. G., & Ehrmann, M. (2002). Does inflation targeting increase output volatility?: An international comparison of policymakers’ preferences and outcomes. In L. Norman & K. Schmidt-Hebbel (Series Eds.), Monetary policy: Rules and transmission mechanisms, Central Banking, Analysis, and Economic Policies Book Series (1st ed., Vol. 4, chap. 9, 247–274). Central Bank of Chile.
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King, M. (2013). Monetary policy: Many targets, many instruments. Where do we stand? Remarks at the IMF Conference on ‘Rethinking Macro Policy II: First Steps and Early Lessons’, Washington, DC.
Olson, E., Enders, W., & Wohar, M. E. (2012). An empirical investigation of the Taylor curve. Journal of Macroeconomics, 34(2), 380–390.CrossRef
Pakko, M. (2000). The cyclical relationship between output and prices: An analysis in the frequency domain. Journal of Money, Credit and Banking, 32(3), 382–399.CrossRef
Pentecôte, J. S., & Rondeau, F. (2015). Trade spillovers on output growth during the 2008 Financial Crisis. International Economics, 143, 36–47.
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Metadaten
Titel
The Output and Inflation Trade-off in South Africa
verfasst von
Eliphas Ndou
Nombulelo Gumata
Copyright-Jahr
2017
Buch
Inflation Dynamics in South Africa

Print ISBN: 978-3-319-46701-6

Electronic ISBN: 978-3-319-46702-3

Copyright-Jahr: 2017

DOI
https://doi.org/10.1007/978-3-319-46702-3_3