Real Interest Rate Persistence in South Africa: Evidence and Implications
Stellenbosch Working Paper Series No. WP17/2012Publication date: 2012
Author(s):
[protected email address] (Department of Economics, University of Pretoria)
[protected email address] (Department of Economics, University of Pretoria)
[protected email address] (Department of Economics, University of Stellenbosch)
[protected email address] (Department of Economics, University of Pretoria)
[protected email address] (Department of Economics, University of Pretoria)
The real interest rate is a very important variable in the transmission of monetary policy. It features in vast majority of financial and macroeconomic models. Though the theoretical importance of the real interest rate has generated a sizable literature that examines its long-run properties, surprisingly, there does not exist any study that delves into this issue for South Africa. Given this, using quarterly data (1960:Q2-2010:Q4) for South Africa, our paper endeavors to analyze the long-run properties of the ex post real rate (EPRR) by using tests of unit root, cointegration, fractional integration and structural breaks. In addition, we also analyze whether monetary shocks contribute to fluctuations in the real interest rate based on test of structural breaks of the rate of inflation as well as Bayesian change point analysis. Based on the tests conducted, we conclude that the South African EPPR can be best viewed as a very persistent but ultimately mean-reverting process. Also, the persistence in the real interest rate can be tentatively considered as a monetary phenomenon.
JEL Classification:C22, E21, E44, E52, E62, G12
Keywords:Real Interest Rate, Monetary Policy, Persistence, Mean Reversion
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Upcoming Seminars
Monday 21 July 202512:00-13:00
Izak Odendaal: Old Mutual Wealth Chief Investment Strategist
Topic: "Diverging fiscal policies and what it means for markets"
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27 Jun 2025 Another setback for the GNU, but oil markets breathe a little easierThis week was marked by heightened tensions both domestically and internationally. At home, friction intensified between the two largest parties in the Government of National Unity (GNU), the ANC and the DA, following the firing of one of the DA's deputy ministers. Internationally, the US conducted airstrikes on three Iranian nuclear facilities using...
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