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Rethinking the current inflation target range in South Africa

Bonga-Bonga, Lumengo and Lebese, Ntsakeseni Letitia (2016): Rethinking the current inflation target range in South Africa.

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Abstract

With critics suggesting that inflation targeting is not an appropriate monetary policy framework for developing and emerging countries, this paper assesses whether or not the 3%-6% inflation target is the optimal inflation target band in South Africa. The optimal inflation target band is determined based on the time-varying non-accelerating inflation rate of unemployment (the NAIRU). The estimation results provide an estimated inflation range that is wider than the current range pursued by the South African Reserve Bank. This may suggest that the current range of inflation hinders real activities, especially employment in South Africa.

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