Abstract
Evidence shows there is trade-off between output and inflation volatilities. The volatilities of inflation and the output were minimised in the inflation-targeting period. Evidence reveals that periods when the macroeconomic performance was superior coincided with the periods of minimal volatilities in both the inflation rates and the output gap.
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Notes
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- 2.
Moreover, theoretically the optimal point on the output-inflation efficiency frontier can only be achieved when a central banker has the independence to set policy without political backlash. Hence, discretionary policymaking translates to the central banker being able to choose the appropriate inflation variability aversion parameter to solve the minimisation problem and make independent policy decisions with a positive influence on a country’s stability and growth.
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The two-year correlations approach is consistent with monetary policy being implemented in a forward looking way, such that the interest rates affect the economy in 18–24 months.
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Ndou, E., Mokoena, T. (2019). Is There Evidence of the Trade-Off in Output and Inflation Volatilities in South Africa?. In: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-19803-9_19
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DOI: https://doi.org/10.1007/978-3-030-19803-9_19
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