CXO

The Opportunistic Approach To Monetary Policy And Financial Markets

Date Added: Feb 2011
Format: PDF

The authors test the concept of the Opportunistic Approach to monetary policy in South Africa post 2000 inflation targeting regime. The findings support the two features of the opportunistic approach. First, they find that the models that include an intermediate target that reflects the recent history of inflation rather than simple inflation target improve the fit of the models. Second, the data supports the view that the South African Reserve Bank (SARB) behaves with some degree of nonresponsiveness when inflation is within the zone of discretion but react aggressively otherwise. Recursive estimates from the preferred model reveal that overall there has been a subdued reaction to inflation, output and financial conditions amidst the increased economic uncertainty of the 2007- 2009 financial crisis.