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Assessing the effectiveness of the monetary policy instrument during the inflation targeting period in South Africa

Bonga-Bonga, Lumengo (2017): Assessing the effectiveness of the monetary policy instrument during the inflation targeting period in South Africa.

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Abstract

This paper assesses how inflation reacts to monetary policy shocks in South Africa during the inflation targeting period by making use of the structural vector error correction model (SVECM). The results of the impulse response function obtained from the SVECM show that, on average, contractionary monetary policy that intends to curb inflationary pressure has been impotent in South Africa. However, the contractionary monetary policy shocks managed to reduce output. The paper suggests that it is time a dual target, inflation and output, be considered in South Africa to avoid the harm caused on output growth from monetary policy actions related to the constraint of inflation targeting.

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