Changes in Inflation Persistence Prior and Subsequent to the Subprime Crisis: What are the Implications for South Africa?
DOI:
https://doi.org/10.6000/1929-7092.2017.06.18Keywords:
Inflation persistence, inflation targeting, global financial crisis, monetary policy, South Africa, sub-Saharan Africa (SSA).Abstract
The appropriateness of the inflation targeting regime as a policy framework for the South African Reserve Bank (SARB) continues to be a furiously debated topic for both academics and policymakers alike. In this study, we approach this debate by examining whether there have been any changes in the persistence of the inflation process for periods prior and subsequent to the global financial crisis. By effect, our study attempts to answer the question of whether inflation targets have been successful in controlling inflation rates in the face of unanticipated financial crisis. Indeed, our empirical results indicate that persistence in the inflation process has decreased in periods subsequent to the subprime crisis, and yet this has been accompanied by decreases in economic growth and unchanged high levels of unemployment. Our study ultimately suggests that given the current status of the economy, inflation may be required to be lowered to close-to-zero levels which will have to be accompanied with higher levels of economic growth, separate macroeconomic policies which specifically target unemployment and a change in domestic real interest rates.
References
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Bruno M. and Easterly W. (1995), “inflation crisis and long-run growth”, NER Working Paper No. 5209.
Burger P. and Du Plessis S. (2013), “A New Keynesian Phillips curve for South Africa”, In P. Schaeffer & E. Koussai (Eds), Econometric methods for analyzing economic development, pp. 30-48, Hershey, Pa.: IGI Global.
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https://doi.org/10.1111/j.1813-6982.2006.00062.x
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Epstein G. (2003), “Alternatives to inflation targeting monetary policy for stable and egalitarian growth: A brief summary”, PERI Working Paper, No. 03-62.
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https://doi.org/10.1111/j.1813-6982.2005.00006.x
Fisher S. (1993), “The role of macroeconomic factors in growth”, Monetary Economics, 32(3), 485-511.
https://doi.org/10.1016/0304-3932(93)90027-D
Gallaway L., Koshal R. and Chaplin G. (1970), “The relationship between the rate of change in money wages and unemployment levels in South Africa”, South African Journal of Economics, 38(4), 367-373.
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Greenwood J. and Huffman G. (1987), “A dynamic equilibrium model of inflation and unemployment”, Journal of Monetary Economics, 95(1), 203-228.
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Hodge D. (2009), “Inflation, unemployment and economics growth in South Africa”, South African Journal of Economics, 77(4), 488-504.
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Hume I. (1971), “A study of inflation in South Africa”, Oxford Bulletin of Economics and Statistics, 33(4), 223-244.
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Leshoro T. (2012), “Estimating the inflation threshold for South Africa”, ERSA Working Paper No. 285, May.
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Malikane C. (2014), “A new Keynesian Phillips curve”, Economic Modelling, 43(C), 247-255.
https://doi.org/10.1016/j.econmod.2014.08.010
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Mitchell-Innes H., Aziakpono M. and Faure A. (2007), “Inflation targeting and the Fisher effect in South Africa: An empirical investigation”, South African Journal of Economics, 75(4), 693-707.
https://doi.org/10.1111/j.1813-6982.2007.00143.x
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https://doi.org/10.1111/j.1813-6982.2011.01266.x
Nell K. (2000), “Is inflation a precondition for faster growth: The South African case”, Economics Discussion Paper - University of Kent.
Phiri A. (2010), “At what level is inflation least detrimental towards finance-growth activity in South Africa?”, Journal of Sustainable Development in Africa, 12(6), 354-364.
Phiri A. (2016), “Examining asymmetric effects in the South African Phillips curve: Evidence from logistic smooth transition regression models”, International Journal of Sustainable Economy, 8(1), 18-42.
https://doi.org/10.1504/IJSE.2016.073683
Phiri A. (2016), “Inflation persistence and monetary policy in South Africa: Is the 3-6 percent inflation target too persistent”, International Journal of Sustainable Economy, 18(2), 111-124.
https://doi.org/10.1504/IJSE.2016.075909
Phiri A. and Lusanga P. (2011), “Can asymmetries account for the failure of the Fisher effects in South Africa?” Economics Bulletin, 31(3), 1968-1979.
Pretorius C. and Smal M. (1994), “A macro-economic examination of the price formation process in the South African economy”, South African Reserve Bank Quarterly Bulletin, 25-36, March.
Rangasamy L. (2009), “Inflation persistence and core inflation: the case of South Africa”, South African Journal of Economics, 77(3), 430-444.
https://doi.org/10.1111/j.1813-6982.2009.01222.x
Sarel M. (1996), “Nonlinear effects of inflation on economic growth”, IMF Staff Papers, 43(1), 199-215.
https://doi.org/10.2307/3867357
Sidrauski M (1967), “Rational choice and patterns of growth in a monetary economy”, American Economic Review, 57(2), 534-544.
Strebel P. (1976), “On built-in inflation, imported prices and the Phillips curve: A comment”, South African Journal of Economics, 44 (4), 285-291.
https://doi.org/10.1111/j.1813-6982.1976.tb00500.x
Stockman A. (1981), “Anticipated inflation and the capital stock in a cash-in-advance economy”, Journal of Monetary Economics, 8(3), 387-393.
https://doi.org/10.1016/0304-3932(81)90018-0
Tobin J. (1965), “Money and economic growth”, Econometrica, 33(4), 671-684.
https://doi.org/10.2307/1910352
Truu M. (1975), “Inflation in the South African economy”, South African Journal of Economics, 43(4), 446-470.
https://doi.org/10.1111/j.1813-6982.1975.tb00458.x
Veller C. and Ellyne M. (2011),”What is the SARB’s inflation targeting policy, and is it appropriate?”, MPRA Working Paper No. 42134, August.
Bleaney M. and Francisco M. (2005), “Inflation persistence and exchange rate regimes: Evidence from developing countries”, Economics Bulletin, 6(2), 1-15.
Bruno M. and Easterly W. (1995), “inflation crisis and long-run growth”, NER Working Paper No. 5209.
Burger P. and Du Plessis S. (2013), “A New Keynesian Phillips curve for South Africa”, In P. Schaeffer & E. Koussai (Eds), Econometric methods for analyzing economic development, pp. 30-48, Hershey, Pa.: IGI Global.
Burger P. and Marnikov M. (2006), “The South African Phillips curve: How applicable is Gordon’s model?”, South African Journal of Economics, 74(2), 172-189.
https://doi.org/10.1111/j.1813-6982.2006.00062.x
Cooley T. and Hansen G. (1989), “The inflation tax in a real business cycle model”, American Economic Review, 79, 733-748.
Epstein G. (2003), “Alternatives to inflation targeting monetary policy for stable and egalitarian growth: A brief summary”, PERI Working Paper, No. 03-62.
Fedderke J. and Schaling E. (2005), “Modelling inflation in South Africa: A multivariate cointegration analysis’, South African Journal of Economics, 73(1), 79-92.
https://doi.org/10.1111/j.1813-6982.2005.00006.x
Fisher S. (1993), “The role of macroeconomic factors in growth”, Monetary Economics, 32(3), 485-511.
https://doi.org/10.1016/0304-3932(93)90027-D
Gallaway L., Koshal R. and Chaplin G. (1970), “The relationship between the rate of change in money wages and unemployment levels in South Africa”, South African Journal of Economics, 38(4), 367-373.
https://doi.org/10.1111/j.1813-6982.1970.tb00267.x
Greenwood J. and Huffman G. (1987), “A dynamic equilibrium model of inflation and unemployment”, Journal of Monetary Economics, 95(1), 203-228.
https://doi.org/10.1016/0304-3932(87)90047-X
Hodge D. (2002), “Inflation versus Unemployment in South Africa”, South African Journal of Economics, 70(3), 418-443.
https://doi.org/10.1111/j.1813-6982.2002.tb01298.x
Hodge D. (2009), “Inflation, unemployment and economics growth in South Africa”, South African Journal of Economics, 77(4), 488-504.
https://doi.org/10.1111/j.1813-6982.2009.01226.x
Hume I. (1971), “A study of inflation in South Africa”, Oxford Bulletin of Economics and Statistics, 33(4), 223-244.
Khan M. and Senhadji A. (2001), “Threshold effects in the relationship between inflation and growth”, IMF Staff Papers, 48, 1-21.
Leshoro T. (2012), “Estimating the inflation threshold for South Africa”, ERSA Working Paper No. 285, May.
Lucas R. and Stokey N. (1987), “Money and interest in a cash-in-advance economy”, Econometrica, 55(3), 491-513.
https://doi.org/10.2307/1913597
Malikane C. (2014), “A new Keynesian Phillips curve”, Economic Modelling, 43(C), 247-255.
https://doi.org/10.1016/j.econmod.2014.08.010
McCallum B. and Goodfriend M. (1987), “Money: Theoretical analysis of the demand for money”, NBER Working Paper No. 1892.
Mitchell-Innes H., Aziakpono M. and Faure A. (2007), “Inflation targeting and the Fisher effect in South Africa: An empirical investigation”, South African Journal of Economics, 75(4), 693-707.
https://doi.org/10.1111/j.1813-6982.2007.00143.x
Morar D. (2012), “Inflation threshold and nonlinearity: Implications for inflation targeting in South Africa”, M.Com Dissertation, Rhodes University.
Mourelle E., cuestas J. and Gil-Alana L. (2011), “Is there asymmetric behaviour in African inflation? A non-linear approach”, South African Journal of Economics, 79(1), 68-90.
https://doi.org/10.1111/j.1813-6982.2011.01266.x
Nell K. (2000), “Is inflation a precondition for faster growth: The South African case”, Economics Discussion Paper - University of Kent.
Phiri A. (2010), “At what level is inflation least detrimental towards finance-growth activity in South Africa?”, Journal of Sustainable Development in Africa, 12(6), 354-364.
Phiri A. (2016), “Examining asymmetric effects in the South African Phillips curve: Evidence from logistic smooth transition regression models”, International Journal of Sustainable Economy, 8(1), 18-42.
https://doi.org/10.1504/IJSE.2016.073683
Phiri A. (2016), “Inflation persistence and monetary policy in South Africa: Is the 3-6 percent inflation target too persistent”, International Journal of Sustainable Economy, 18(2), 111-124.
https://doi.org/10.1504/IJSE.2016.075909
Phiri A. and Lusanga P. (2011), “Can asymmetries account for the failure of the Fisher effects in South Africa?” Economics Bulletin, 31(3), 1968-1979.
Pretorius C. and Smal M. (1994), “A macro-economic examination of the price formation process in the South African economy”, South African Reserve Bank Quarterly Bulletin, 25-36, March.
Rangasamy L. (2009), “Inflation persistence and core inflation: the case of South Africa”, South African Journal of Economics, 77(3), 430-444.
https://doi.org/10.1111/j.1813-6982.2009.01222.x
Sarel M. (1996), “Nonlinear effects of inflation on economic growth”, IMF Staff Papers, 43(1), 199-215.
https://doi.org/10.2307/3867357
Sidrauski M (1967), “Rational choice and patterns of growth in a monetary economy”, American Economic Review, 57(2), 534-544.
Strebel P. (1976), “On built-in inflation, imported prices and the Phillips curve: A comment”, South African Journal of Economics, 44 (4), 285-291.
https://doi.org/10.1111/j.1813-6982.1976.tb00500.x
Stockman A. (1981), “Anticipated inflation and the capital stock in a cash-in-advance economy”, Journal of Monetary Economics, 8(3), 387-393.
https://doi.org/10.1016/0304-3932(81)90018-0
Tobin J. (1965), “Money and economic growth”, Econometrica, 33(4), 671-684.
https://doi.org/10.2307/1910352
Truu M. (1975), “Inflation in the South African economy”, South African Journal of Economics, 43(4), 446-470.
https://doi.org/10.1111/j.1813-6982.1975.tb00458.x
Veller C. and Ellyne M. (2011),”What is the SARB’s inflation targeting policy, and is it appropriate?”, MPRA Working Paper No. 42134, August.
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Published
2017-06-05
How to Cite
Phiri, A. (2017). Changes in Inflation Persistence Prior and Subsequent to the Subprime Crisis: What are the Implications for South Africa?. Journal of Reviews on Global Economics, 6, 198–207. https://doi.org/10.6000/1929-7092.2017.06.18
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Special Issue - Monetary Policy in a Post-Crisis World: Experiences and Practices
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