South Africa : The Cyclical Behavior of the Markups and its Implications for Monetary Policy

Author/Editor:

Nir Klein

Publication Date:

August 1, 2011

Electronic Access:

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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:

The study looks at the cyclical behavior of the markups and assesses its impact on inflation dynamics. The analysis finds that the aggregate level of the private sector's markup is relatively high, thus pointing to the lack of strong competition in South Africa's product markets. Additionally, the results suggest that the markups tend to move in a countercyclical manner, with a short-term positive impact on inflation. This implies that the countercyclical pattern of the markups is one factor among others that contribute to the relatively weak output gap-inflation co-movement. In the context of South Africa's inflation targeting framework, the counter-cyclical markups may also generate an asymmetric response of monetary policy to the fluctuations in economic activity.

Series:

Working Paper No. 11/204

Subject:

English

Publication Date:

August 1, 2011

ISBN/ISSN:

9781463902155/1018-5941

Stock No:

WPIEA2011204

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

22

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