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What does the paper do ?

This paper examines the monetary policy framework of the South African Reserve Bank, estimates reaction functions under various assumptions, and analyzes the effectiveness of communication. It provides valuable insights into inflation targeting in emerging markets and raw material exporting countries.

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What does the paper do ?

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  1. Iikka Korhonen Comments on "The monetary policy of the South African Reserve Bank: Stance, communication and credibility

  2. Whatdoesthepaperdo? • Describesthemonetarypolicyframework of South AfricanReserve Bank • Estimatesreactionfunctions of SARB undervariousassumptions Iikka Korhonen

  3. Overallcomments • Veryniceoverview of monetarypolicyframework of a large and importantemerging market • Also, importantcontribution to theliterature on inflationtargeting in emerging market and rawmaterialexportingcountries • Alwaysnice to learnsomethingaboutnew (to me) countries! • Anypapername-checkingTwinPeaks is alreadywell on itsway Iikka Korhonen

  4. Somecomments on the general structure/contents of thepaper • Somemorediscussion and information on institutionalaspects of monetarypolicy and/orthemonetaryauthority • For example, threedifferentgovernorsareoftenmentioned and discussed – howabout a table of theirterms, moreinformationhowtheyareappointed etc.? • Whywasinflationtargetinginitiallyadopted? • Verymuchcenteredaround South Africa – wouldbeveryinteresting to comparewithpossiblepeers – howdifferent? • For example, Chile, anotherprominentrawmaterialexporter, hasbeenfull-fledgedinflationtargetersince 1999, Brazil since 1999, Russiasince 2015 etc. • Additionalmandate of financialstability is discussedbriefly • Even though it camelegally into forceonly in April 2018, is it possiblethatconcernsoverfinancialstabilityhaveinfluencedconduct of monetarypolicyalreadybefore? Iikka Korhonen

  5. Empiricalassessment of themonetarypolicystance • Clearbreakaroundtheglobalfinancialcrisis; whatchanged? Domesticfactorsseem to losealltheirrelevance for SARB interestrate • Capital flowsmoreimportant? Financial stabilityconcern? (How to measurethem? NPLs?) • Robustnesschekcs: • Leave out 2008-2010 • Checkformally for structuralbreaks • Rolling regression mightgivebetter idea abouttiming of changes • Interactiondummies for governors’ terms? • Whatdeterminestheequilibriumexchangerate? Now long-runaverage, but is realexchangeratecorrelatedwithexport/rawmaterialprices? Couldprovidemorerealisticmetric Iikka Korhonen

  6. Time-varyinginflationtarget and neutralinterestrate • Whydidtheimplicitinflationtargetincreaseuntil 2013-2014? • Whenneutralinterestrate is allowed to vary, implicitinflationtargetdoesnotchangemuch – whichone is moretrue? Iikka Korhonen

  7. Monetarypolicycommunication • Relationshipbetweensentiment and interestratenon-monotonic; is thisresultunique to South Africa? • Doesthesentimentaffectothervariables? Exchange rate? Inflationforecastvariability? Iikka Korhonen

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