Is There a Case for Formal Inflation Targeting in Sub-Saharan Africa?

Heintz, James; Ndikumana, Léonce

doi:10.1093/jae/ejq027

Cited by 31 publications

(30 citation statements)

References 32 publications

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“…Therefore, since the SADC region comprises of developing countries, it is expected that the threshold level would be around the same range as that found by previous research in this field such as Ibarra and Trupkin (2011),andMignon and Villavicencio (2011), who found a threshold level of 19.1% and 19.6%for developing countries, respectively. Therefore, there seems to be a consensus that high inflation rates will have a negative impact on growth, and this turning point (threshold level) will most likely be reached once inflation exceeds 15 to 20% (Heintz and Ndikumana, 2011). Thirdly, the choice of estimation model and robustness check also play an important role in examining the non-linearities in the infla-tion-growth nexus.…”

Section: Literature Reviewmentioning

confidence: 99%

Non-linearities in inflation–growth nexus in the SADC region: A panel smooth transition regression approach

2013

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The main objective of central banks around the world is the achievement and maintenance of price stability, which actually creates an environment conducive for faster economic growth. Therefore, it is important for policy makers to understand the relationship between inflation and economic growth in order to make sound policies. If inflation is detrimental to economic growth, then policy makers should aim for low rates of inflation. This leads to a question; how low should the inflation rate be? Previous research in the non-linearities of the inflation-growth relationship has found that a positive relationship exists when the in-flation rate is low and a negative relationship when the inflation rate is high. This implies the existence of a threshold level of inflation at which the sign switches. In this paper we use panel data for the period 1980-2008 to examine the inflation-growth nexus in the Southern African Development Community (SADC) re-gion and to endogenously determine the threshold level of inflation. To deal with problems of endogeneity and heterogeneity, the paper uses the Panel Smooth Transition Regression (PSTR) method developed by González et al. (2005) to examine the non-linearities in the inflation-growth nexus. This technique further estimates the smoothness of the transition from a low inflation to a high inflation regime. The findings reveal a threshold level of 18.9%, above which inflation is detrimental to economic growth in the SADC region.

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Section: Literature Reviewmentioning

confidence: 99%

Non-linearities in inflation–growth nexus in the SADC region: A panel smooth transition regression approach

2013

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“…In response to these impacts and to insure against further detrimental effects, monetary policy worldwide has changed significantly since 2008. Overall, the SARB has demonstrated considerable flexibility and pragmatism to counteract the spillover effects from the global crisis (Heintz and Ndikumana 2010;Kasekende, Brixiova, and Ndikumana 2010). Heintz and Ndikumana (2010, 26) argue that ''adherence to strict rules under the inflation targeting regime has taken a back seat while the Reserve Bank and Treasury focused on protecting employment and incomes by supporting industry and domestic activity in general''.…”

Section: Reserve Bank Policy After 2008mentioning

confidence: 99%

Inflation Targeting in South Africa: Friend or Foe of Development?

Cömert¹,

Epstein

2011

Economic History of Developing Regions

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“…One of the most important findings of their work is that between 2003 and beginning of 2007 during which IT proved successful in terms of achieving targets, real exchange rate of rand exhibited an appreciation trend. Similar to Heintz and Ndikumana (2010), Cömert and Epstein (2011) indicate that when commodity prices increased and exchange rate depreciated inflation targets were missed and inflation remained high in South Africa. The main findings of the paper are as follows.…”

Section: Introductionmentioning

confidence: 67%

Implicit asymmetric exchange rate peg under inflation targeting regimes: the case of Turkey

Benlialper

Cömert

2015

CAMECO

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Especially, after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing inflation targeting regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilized as implicit tools even under inflation targeting regimes in developing countries? To answer this question and investigate the determinants of inflation under an inflation targeting regime, as a case study, this paper analyzes the Turkish experience with the inflation targeting regime between 2002 and 2008. There are two main findings of this paper. First, the evidence from a Vector Autoregressive (VAR) model suggests that the main determinants of inflation in Turkey during this period are supply side factors such as international commodity prices and the variation in exchange rate rather than demand side factors. Since the Turkish lira (TL) was considerably over-appreciated during this period, it is apparent that the Turkish Central Bank benefited from the appreciation of the TL in its fight against inflation during this period. Second, our findings suggest that the appreciation of the TL is related to the deliberate asymmetric policy stance of the Bank with respect to the exchange rate. Both the econometric analysis from a VAR model and descriptive statistics indicate that appreciation of the Turkish lira was tolerated during the period under investigation whereas depreciation was responded aggressively by the Bank. We call this policy stance under the inflation targeting regimes as "implicit asymmetric exchange rate peg". The Turkish experience indicates that, as opposed to rhetoric of central banks in developing countries, inflation targeting developing countries may have an asymeyric stance toward exchange rates and favour appreciation of their currencies to hit their inflation targets. In this sense, IT seems to contribute to the ignorance of dangers regarding to over-appreciation of currencies in developing countries.

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Is There a Case for Formal Inflation Targeting in Sub-Saharan Africa?

Cited by 31 publications

References 32 publications

Non-linearities in inflation–growth nexus in the SADC region: A panel smooth transition regression approach

Non-linearities in inflation–growth nexus in the SADC region: A panel smooth transition regression approach

Inflation Targeting in South Africa: Friend or Foe of Development?

Implicit asymmetric exchange rate peg under inflation targeting regimes: the case of Turkey

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