Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229413
Authors: 
Gereziher, Hayelom Yrgaw
Nuru, Naser Yenus
Year of Publication: 
2021
Series/Report no.: 
WIDER Working Paper No. 2021/12
Abstract: 
This paper estimates the output cost of fighting inflation-the sacrifice ratio-for the South African economy using quarterly data spanning the period 1998Q1-2019Q3. To compute the sacrifice ratio, the structural vector autoregressive model developed by Cecchetti and Rich (2001) based on Cecchetti (1994) is employed. Our findings show us a small sacrifice ratio, which lies within the range 0.00002-0.231 per cent with an average of 0.031 per cent, indicating a low level of output to be sacrificed while fighting inflation. Hence, the reserve bank is recommended to sustain an inflation rate within the target range and reap the benefits of a predictable and stable price path, as restrictive monetary policy has only a transitory effect on real variables like output.
Subjects: 
inflation targeting
output
sacrifice ratio
South Africa
structural VAR model
JEL: 
E32
E52
Persistent Identifier of the first edition: 
ISBN: 
978-92-9256-946-4
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-sa/3.0/igo/
Document Type: 
Working Paper

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