A sticky information Phillips curve for South Africa
Stellenbosch Working Paper Series No. WP22/2013Publication date: 2013
Author(s):
[protected email address] (Department of Economics, University of Stellenbosch)
Mankiw and Reis (2002) propose the Sticky Information Phillips Curve as an alternative to the standard New Keynesian Phillips Curve, to address empirical shortcomings in the latter. In this paper, a Sticky Information Phillips curve for South Africa is estimated, which requires data on expectations of current period variables conditional on sequences of earlier period information sets. In the literature the choice of proxies for the inflation expectations and output gap measures are usually not well motivated. In this paper, we test the sensitivity of model fit and parameter estimates to a variety of proxies. We find that parameter estimates for output gap proxies based either on a simple Hodrik-Prescott filter application or on a Kalman filter estimation of an aggregate production function are significant and reasonable, whereas methods employing direct calculation of marginal costs do not yield acceptable results. Estimates of information updating probability range between 0.69 and 0.81. This is somewhat higher than suggested by alternative methods using micro-evidence (0.65 – 0.70 (Reid, 2012)). Lastly, we find that neither parameter estimates nor model diagnostics are sensitive to the choice of expectation proxy, whether it be constructed from surveyed expectations or the ad hoc VAR based forecasting methods.
JEL Classification:E31, E3, E52
Keywords:South Africa, sticky information, Phillips curve
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Monday 28 July 202512:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
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Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
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Topic: "Economic History: TBC"
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25 Jul 2025 Budget hurdle cleared, but US tariff implementation remains a riskIt was another big week on the local political front, but with some constructive momentum. On the trade front, ahead of next week’s 1 August deadline, Trump announced another “massive” trade deal with Japan. The upcoming week is busy, with a slew of global and domestic data releases and several monetary policy decisions, including the SARB....
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