Nonlinear impact of inflation on economic growth in South Africa: A smooth transition regression (STR) analysis

Keorapetse Khoza, Relebogile Thebe and Andrew Phiri

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we challenge the notion of a monotonic relationship between inflation and economic growth in South Africa. In particular, we establish threshold effects in the inflation-growth relationship using a smooth transition regression (STR) model which is applied on data collected between 1994:Q1 and 2016:Q2. Our empirical results confirm a threshold of 5.4 percent in which the effects of inflation on economic growth are positive below this threshold whereas inflation exerts adverse effect on economic growth at inflation levels above this level. In a nutshell, our study offers support in favour of the optimal level of inflation lying between the current 3-6 percent inflation target and more specifically suggests that the monetary authorities should slightly lower the upper level of this target to about 5.4 percent as a means creating a more conducive financial environment for promoting higher economic growth.

Keywords: Inflation; Economic growth; Thresholds; Smooth transition regressions (STR); South Africa Reserve Bank (SARB). (search for similar items in EconPapers)
JEL-codes: C22 C32 C52 E31 E52 O40 (search for similar items in EconPapers)
Date: 2016-09-19
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/73840/1/MPRA_paper_73840.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:73840

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().