MONETARY POLICY ACTION AND INFLATION IN SOUTH AFRICA: AN EMPIRICAL ANALYSIS

 

Lumengo Bonga-Bonga and Alain Kabundi
University of Johannesburg

 

ABSTRACT

This paper examines the impact of the monetary policy instrument, the repo rate, mainly on output gap and inflation rate in South Africa, over the period 19982008. Use is made of a simple structural vector autoregressive (SVAR) framework in assessing the impulse response functions (IRFs) of output gap and inflation rate to monetary policy shocks. The VAR includes output gap, rather than output, to control for the price puzzle. The results of the IRFs show that monetary policy instrument, the repo rate, did not impact on inflation in South Africa over the sample period covered by the paper.