The long-run impact of inflation in South Africa

Abstract

This paper evaluates the hypothesis of long-run super-neutrality of money (LRSN) within the context of the South African economy. The long-run impact of inflation on the interest rate and subsequently, output is estimated by employing a trivariate structural vector autoregression model, using quarterly data for the period of 1960:1 to 2010:1. The estimation results suggest that the hypothesis of LRSN cannot be rejected, thereby suggesting that monetary policy in South Africa cannot be used to solve the large and persistent unemployment problem in South Africa, which is understandable, since unemployment is inherently structural and is due to skills-shortage. This is further supported by our one of our other results which shows that significant long-run impact on output is obtained from technological improvements.