e-journal

Threshold effects and inflation persistence in South Africa

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The purpose of this paper is to evaluate threshold effects in the persistence of South
African aggregate inflation data.
Design/methodology/approach – The conventional approach for assessing the degree of
persistence within an inflation process is via its integration properties. This study makes use of
univariate threshold autoregressive (TAR) models and associated unit root testing procedures to
investigate the integration properties of the inflation data. Out-of-sample forecasts are further
performed for the TAR models and their linear counterparts.
Findings – The empirical results confirm threshold effects in the persistence of all employed
aggregated measures of inflation, whereas such asymmetric effects are ambiguous for disaggregated
inflation measures. None of the observed series is found to be stationary in their levels. The
out-of-sample forecasts for all TAR models outperform their linear counterparts.
Practical implications – Given the scope of the study, the empirical analysis provides insight with
concern to the performance of inflation subsequent to the adoption of the inflation target regime in
South Africa. Of particular interest are the low persistence levels observed at inflation rates of below
4.7 and 4.4 percent for core and CPI inflation, respectively, as both these aggregated measures of
inflation play an essential role in guiding monetary policy conduct within the economy. The overall
findings imply that on an aggregate level, the South African Reserve Bank’s (SARB’s) current inflation
target of 3-6 percent encompasses a non-stationary inflation range and thus proves to be restrictive on
monetary policy conduct.
Originality/value – The paper fills in an important gap in the academic literature by evaluating
asymmetric effects in the integration properties of inflation, at both aggregated and disaggregated
levels, for the exclusive case of South Africa.

Keywords South Africa, Monetary policy, Inflation, Macroeconomics, Money supply, Credit,
Time-series models, Single equation models, Single variables, Mathematical and quantitative methods,
Deflation, Business fluctuations and cycles, Monetary economics, Central banking

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Informasi Detail

Judul Seri

Journal of Financial Economic Policy

No. Panggil

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Penerbit

: Emerald Group., 2012

Deskripsi Fisik

Journal of Financial Economic Policy Vol. 4 No. 3, 2012

Bahasa

English

ISBN/ISSN

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Klasifikasi

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Tipe Isi

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Tipe Media

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Tipe Pembawa

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Edisi

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Subjek

EKONOMI

Info Detail Spesifik

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Pernyataan Tanggungjawab

Asmawati/Syahrial

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