Abstract:
Recent empirical evidence on the direct link of inflation targeting and inflation volatility is
at best mixed. However, comparing inflation volatility across alternative monetary policy
regimes within a country based on conventional ways, used in previous studies, begs the
question. The question is not whether the volatility of inflation has changed, but rather
whether the volatility is different than it otherwise would have been. In such a backdrop,
this paper uses the cosine-squared cepstrum to provide evidence that CPI inflation in South
Africa has become more volatile since the first quarter of 2000, when the country moved
into an inflation targeting regime, than it would have been had the South African Reserve
Bank (SARB) continued with the more eclectic monetary policy approach pursued in the
pre-targeting era.
