Isolating a measure of inflation expectations for the South African financial market using forward interest rates
Stellenbosch Working Paper Series No. WP09/2009Publication date: 2009
Author(s):
The inflation expectations channel of the transmission mechanism is generally recognised as crucial for the implementation of modern monetary policy. This paper briefly reviews the practices commonly employed for measuring inflation expectations in South Africa and offers an additional method, which is market based. The methodologies of Nelson and Siegel (1987) and Svensson (1994) are applied to determine implied nominal and real forward interest rates. The difference between the nominal and real forward rates (called inflation compensation) on a particular day is then used as a proxy for the market’s inflation expectations. This measure should not be viewed as a substitute for other measures of inflation expectations, but should rather supplement these in order to offer an additional insight.
JEL Classification:E43, E44, E52, E58
Keywords:South Africa, Inflation expectations, Monetary policy transmission mechanism, Implied forward rates, Term structure of interest rates
Download: PDF (371 KB)Login
(for staff & registered students)
BER Weekly
18 Oct 2024Amid a mixed bag of internal trade data releases, the domestic economic news unpacked the South African Reserve Bank’s (SARB) biannual Monetary Policy Review (MPR). Administrated prices remain a key concern for the Bank, with more details around Eskom’s hefty tariff increase application discussed in more detail below. Internationally, the European Central...
Read the full issue
BER Weekly
18 Oct 2024Amid a mixed bag of internal trade data releases, the domestic economic news unpacked the South African Reserve Bank’s (SARB) biannual Monetary Policy Review (MPR). Administrated prices remain a key concern for the Bank, with more details around Eskom’s hefty tariff increase application discussed in more detail below. Internationally, the European Central...
Read the full issue