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To What Extent Does the Output-Inflation Trade-Off Exist in South Africa and Is It Impacted by the Six Per Cent Inflation Threshold?

  • Eliphas Ndou
  • Thabo Mokoena
Chapter

Abstract

The chapter determines the extent to which elevated nominal volatilities make expansionary policy ineffective in achieving maximum real output and low inflation. Evidence shows that elevated nominal demand and inflation volatility shocks reduce the output-inflation trade-off, and this reduces policy effectiveness in achieving desirable outcomes. The magnitudes of the reduction in the output-inflation trade-off effects are larger in the high inflation regime than in the low inflation regime. In policy terms, this evidence confirms the new Keynesian hypothesis, which implies that demand policy is less effective in countries with both high inflation and demand volatilities. Therefore, policymakers should minimize the volatility of inflation when implementing demand management policy and ensure that price stability is enforced to minimize inflation volatility.

References

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  2. Lucas, Robert. (1973). Some international evidence on output-inflation tradeoffs. American Economic Review, 63(3), 326–334.Google Scholar
  3. Odebokun, O. (1991). Evidence on the inflation-output trade off in developing and industrial countries. Applied Economics, 23, 731–742.Google Scholar
  4. Sun. (2012). Nominal rigidity and some new Keynesian evidence on the new Keynesian theory of the output-inflation trade off (MPRA Chapter No. 45021).Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Eliphas Ndou
    • 1
    • 3
    • 4
  • Thabo Mokoena
    • 2
  1. 1.Economic Research DepartmentSouth African Reserve BankPretoriaSouth Africa
  2. 2.Department of Economic, Small Business Development, Tourism and Environmental AffairsFree State Provincial GovernmentBloemfonteinSouth Africa
  3. 3.School of Economic and Business SciencesUniversity of the WitwatersrandJohannesburgSouth Africa
  4. 4.Wits Plus, Centre for Part-Time StudiesUniversity of the WitwatersrandJohannesburgSouth Africa

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