Loud and clear? Can we hear when the SARB speaks?

Stellenbosch Working Paper Series No. WP11/2010
 
Publication date: 2010
 
Author(s):
[protected email address] (Department of Economics, University of Stellenbosch)
[protected email address] (Department of Economics, University of Stellenbosch)
 
Abstract:

Inflation targeting is a forward-looking framework for monetary policy that has brought unprecedented transparency to the process of monetary policy. This paper aims to assess the degree to which the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has, since the introduction of inflation targeting, successfully communicated to the public its policy analysis, and, in particular, the expected future policy changes. This paper follows international literature (Rosa and Verga (2007), Ehrmann and Fratszcher (2005)) in constructing a numerical index that is used to reflect the information content of the SARB’s communications, specifically the monetary policy statements that accompanied each of the MPC meetings since 2000. Relating this index to subsequent policy decisions reveals the informativeness of the index and, by implication, the informativeness of the underlying monetary policy statements. This method allows us to judge, systematically, the degree to which the MPC has communicated successfully, and the evolution of that success over the past nine years. We find evidence that the MPC has succeeded in signalling their likely future policy decision with consistency over this period.

 
JEL Classification:

E42, E52, E58

Keywords:

South Africa, Inflation targeting, Central bank communication, Effective monetary policy, forward-looking policy framework

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BER Weekly

27 September 2021
Besides the escalating woes at leading Chinese property group Evergrande, global and domestic financial markets were focused on a slew of central bank policy meetings last week. ...

Read the full issue