Inflation and Output Growth Dynamics in South Africa: Evidence from the Markov Switching Vector Autoregressive Model

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6 Citations (Scopus)

Abstract

This paper introduces the possibility of asymmetry in the reaction of output growth to inflation shocks in South Africa by making use of the Markov-switching vector autoregressive model. Using quarterly data from 1969Q1 to 2013Q4, the empirical finding suggests that the reaction of output growth to inflation shocks is not only regime dependent but is also contingent on how the monetary authority reacts to such shocks. Two important regimes are identified; the high and low inflation volatility regimes. Consistent with the signal extraction theory, the output effect of inflation shocks is found to be significantly lower in the high inflation volatility regime compared to the low inflation regime.

Original languageEnglish
Pages (from-to)143-154
Number of pages12
JournalJournal of African Business
Volume19
Issue number1
DOIs
Publication statusPublished - 2 Jan 2018

Keywords

  • Inflation
  • MSVAR
  • economic growth
  • non-linearity

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development

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