Macroeconomics and Monetary Economics - 2
The total economy is affected by inflation which should be effectively controlled to support
economic growth. However, in recent years there has been evidence of inefficiencies of inflationary
control in South Africa as the country is faced with both structural and cost-push inflation in a low
growth economy. The objective of this study was to investigate whether these inflation types are
effectively controlled through the utilisation of interest rates and money supply by the South African
Reserve Bank (SARB). Secondary data from the SARB were collected for 69 quarters from 2000 Q1
to 2017 Q1. An autoregressive distributive lag model (ARDL) was used to analyse the data for longrun
co-integration while an error correction model (ECM) tested for short-run relationships. Variables
included the consumer price index (CPI), money supply, interest rate (repo rate), government
expenditure as well as trade openness. The results indicated that both long- and short-run relationships
exist between the variables. The study revealed that structural and cost-push inflation exists in South
Africa, making the current methods of monetary policy implementation less effective in controlling
inflation as well as having an impact on economic growth.
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