Monetary policy reaction function pre and post the global financial crisis

Raputsoane, Leroi (2018): Monetary policy reaction function pre and post the global financial crisis.

Abstract

This paper analyses the monetary policy reaction function pre and post the recent global financial crisis in South Africa. This is achieved by comparing the reaction of monetary policy to changes in the target variables that comprise the inflation rate, output gap and financial stress index pre and post the recent global financial crisis. The results show that following an increase in the monetary policy interest rate, inflation falls back to its target rate while output falls below its equilibrium level pre and post the global financial crisis period. The results further show a correction of financial conditions following an increase in the monetary policy interest rate, while they also show a relatively loose monetary policy stance during the financially stressful economic conditions pre and post the global financial crisis period. Most importantly, the results show that the reaction of monetary policy to changes in the target variables pre the recent global financial crisis period has not changed significantly compared to post the global financial crisis period. The paper thus concludes that there is no material difference in the conduct of monetary policy in South Africa pre and post the recent global financial crisis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary policy, Financial stress, Foreign exchange rate
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; G - Financial Economics > G0 - General > G01 - Financial Crises

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