Title: Estimating a growth-maximising inflation targeting band for South Africa

Authors: Temitope Leshoro; Umakrishnan Kollamparambil

Addresses: School of Economic and Business Sciences, University of Witwatersrand, Johannesburg, South Africa; University of South Africa (UNISA), Pretoria, South Africa ' School of Economic and Business Sciences, University of Witwatersrand, Johannesburg, South Africa

Abstract: In the context of the low levels of economic growth and high levels of unemployment in South Africa, the study analyses the output growth implications of the inflation targeting monetary policy of the South African Reserve Bank that targets an inflation band between 3% and 6%. Using the threshold autoregressive technique and the sample splitting threshold regression, this study investigates the nonlinear inflation-growth nexus in South Africa with the purpose of identifying the band of inflation that optimise output growth. The results show that South Africa is able to accommodate a higher level of inflation beyond the current inflation target band by increasing the band to between 7% and 9% in order to enhance output growth. Our findings support the argument of studies that indicate that moderately higher inflation rate will not be harmful to the economy.

Keywords: inflation targeting; monetary policy; output growth; South Africa.

DOI: 10.1504/IJEPEE.2017.089163

International Journal of Economic Policy in Emerging Economies, 2017 Vol.10 No.4, pp.365 - 382

Received: 24 Sep 2015
Accepted: 21 Jan 2016
Published online: 09 Jan 2018 *

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