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The Ball Approach to Disinflation Episodes, Output Costs and Sacrifice Ratios in South Africa

  • Eliphas Ndou
  • Nombulelo Gumata
Chapter
  • 346 Downloads

Abstract

Policymakers know that restrictive monetary policy actions are associated with subsequent output loss and sacrifice ratios. However, the attainment and reinforcement of the primary mandate of price stability is equally important. What are the cumulative losses of output and sacrifice ratios associated with a 1 per cent permanent reduction in inflation during disinflation episodes? How does inflation persistence relate to output losses and sacrifice ratios in these periods? Does the excessive exchange rate depreciation, food inflation during excess of 6 per cent and inflation expectations propagate disinflationary shocks and output costs? This chapter determines the magnitudes of the cumulative losses associated with disinflation episodes due to inflation persistence, excessive exchange rate depreciation, food inflation and inflation expectations. Evidence shows that policymakers should strive to anchor inflation expectations to well within the target range. This assists in lowering inflation persistence, discourages increased reliance on backward-looking inflation expectations and yields lower disinflation costs. In addition, having lowered inflation policymakers have a very compelling case to keep inflation stable within the target range.

Keywords

Monetary Policy Price Stability High Inflation Exchange Rate Change Inflation Expectation 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Eliphas Ndou
    • 1
  • Nombulelo Gumata
    • 1
  1. 1.South African Reserve BankPretoriaSouth Africa

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