Monetary Policy and Relative Price Shocks in South Africa and Other Inflation Targeters

Author/Editor: Cuevas, Alfredo ; Topak, Secil
Publication Date: December 01, 2008
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: When faced with a relative price shock, monetary authorities often aim to contain its second round effects on inflation while accepting first round effects. We analyze the experience of South Africa and other inflation targeters to explore whether and when this policy prescription implies changing the monetary policy stance. Inflation targeting central banks differ on how aggressively they typically react to relative price shocks, reflecting differences in resilience of underlying inflation to such shocks. An examination of individual policy decisions reveals the importance of the broader economic context in framing the responses to relative price shocks.
Series: Working Paper No. 08/289
Subject(s): Monetary policy | South Africa | External shocks | Inflation targeting | Pricing policy | Central banks | Energy prices | Commodity prices

Author's Keyword(s): Monetary policy | supply shocks | relative prices | inflation | Taylor rules.
Publication Date: December 01, 2008
Format: Paper
Stock No: WPIEA2008289 Pages: 25
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