Forecasting monetary policy rules in South Africa

Naraidoo, Ruthira; Paya, Iván

doi:10.1016/j.ijforecast.2011.04.006

Cited by 20 publications

(18 citation statements)

References 40 publications

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“…This supports results from other studies (see e.g. Nobay and Peel (2003), Naraidoo and Paya (2012) and Milas and Naraidoo (2012)). Furthermore, it is found that the models with asymmetric preferences yield relatively smaller coefficients relative to the one under quadratic preferences.…”

Section: Discussionsupporting

confidence: 93%

“…it has a deflationary bias. This result supports Nobay and Peel (2003) theoretical model for the European Central Bank (ECB), as well as the estimated nonlinear Taylor rules of Naraidoo and Paya (2012) for South Africa and Milas and Naraidoo (2012) for the ECB. Intuitively, this result (deflationary bias) implies that since the monetary authority is uncertain about the state of the economy and is more worried about making policy mistakes that would push inflation above the target, it will intensify its attempts to stabilize inflation (relative to output), so that the overall rate inflation is lower.…”

Section: B Resultssupporting

confidence: 86%

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Parameter uncertainty and inflation dynamics in a model with asymmetric central bank preferences

Chesang

Naraidoo

2016

Economic Modelling

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This paper exploits the Lucas' (1973) signal extraction model to study the effect of uncertainty in the outputinflation trade-off on inflation, using a monetary model with asymmetric central bank preferences over inflation and output. We show that the implication of the uncertainty is two-fold: firstly, it causes the interaction of output and volatility of monetary policy to influence inflation movements so that, higher volatility in monetary policy causes inflation to rise. Secondly, as suggested in an optimal rule, it causes output to contract by less whenever inflation increases above the target, and to expand by less whenever inflation is below the target. We also find that the Reserve Bank's asymmetric aversion to inflation stabilization explains inflation movements significantly, and that the monetary authority seems to penalize more for inflationary rather than deflationary pressures. Overall, the Bank's deflationary bias would allow for a relatively flat output-inflation trade-off, which could be helpful for economic stability.

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Section: Discussionsupporting

confidence: 93%

Section: B Resultssupporting

confidence: 86%

Parameter uncertainty and inflation dynamics in a model with asymmetric central bank preferences

Chesang

Naraidoo

2016

Economic Modelling

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“…The empirical results show that the prediction combination improves the accuracy of model prediction [7]. Ruthira Naraidoo [9], Andrey Vasnev [10] and Pauwels L [11] used a combined prediction method based on the ordered Probit model to study the decisionmaking of monetary policy operations of the Reserve Bank of South Africa, the Reserve Bank of Australia and the Federal Reserve.…”

Section: Literature Reviewmentioning

confidence: 99%

Research on Forecasting of China's Monetary Policy Based on Random Forest Algorithm.pdf

qiu¹

2020

Preprint

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This paper uses the random forest algorithm model to quantify and predict the monetary policy of the People's Bank of China under the input of 16 macroeconomic indicators. It is compared with three other machine learning algorithms (CART decision tree, support vector machine and neural network algorithm), discrete selection model and combined prediction model. The results show that the random forest algorithm shows better prediction accuracy in predicting the direction of the central bank's monetary policy.

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“…It is fairly well documented 2 that central banks may exhibit biases and time-varying responses when confronted with competing objectives (for South Africa cf. Naraidoo and Paya (2012), Kasai and Naraidoo (2011) and Naraidoo and Raputsoane (2011).) 3…”

Section: Introductionmentioning

confidence: 99%

Inflation and Market Uncertainty in South Africa

Burger

2014

South African J Economics

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Comparison of the movements in the VIX index, the rand – dollar exchange rate and South African CPI inflation reveals a striking resemblance between them, raising the question as to whether or not there is an empirical relationship among them. The aim of this paper is to determine whether or not changes in market uncertainty, as reflected in the VIX index, influence South African inflation. Given that the VIX index reflects market uncertainty, its impact on the inflation rate may differ between times of heightened uncertainty and normality, thus suggesting the presence of multiple regimes. To cater for this possibility, the analysis first uses the general‐to‐specific procedure (including squared and cubed values of dependent and independent variables) with impulse indicator saturation dummies to look for non‐linear behaviour in the form of statistically significant squared and cubed variables and clustered periods of outlier dummies that might reflect an alternative regime. Finding such periods, the analysis next uses a Markov‐switching model to model this non‐linear behaviour explicitly. The results show that market volatility as measured by the VIX indeed explains South African inflation. Moreover, as shown by the second regime of the Markov‐switching model, when market volatility is elevated, its influence on inflation also increases.

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Forecasting monetary policy rules in South Africa

Cited by 20 publications

References 40 publications

Parameter uncertainty and inflation dynamics in a model with asymmetric central bank preferences

Parameter uncertainty and inflation dynamics in a model with asymmetric central bank preferences

Research on Forecasting of China's Monetary Policy Based on Random Forest Algorithm.pdf

Inflation and Market Uncertainty in South Africa

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