Real interest rate persistence in South Africa : evidence and implications
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Date
Authors
Das, Sonali
Gupta, Rangan
Kanda, Patrick T.
Reid, Monique
Tipoy, Christian Kakese
Zerihun, Mulatu F.
Journal Title
Journal ISSN
Volume Title
Publisher
Springer
Abstract
The real interest rate is a very important variable in the transmission of monetary policy. It
features in vast majority of financial and macroeconomic models. Though the theoretical importance
of the real interest rate has generated a sizable literature that examines its long-run
properties, surprisingly, there does not exist any study that delves into this issue for South
Africa. Given this, using quarterly data (1960:Q2-2010:Q4) for South Africa, our paper endeavors
to analyze the long-run properties of the ex post real rate (EPRR) by using tests of unit
root, cointegration, fractional integration and structural breaks. In addition, we also analyze
whether monetary shocks contribute to fluctuations in the real interest rate based on test of
structural breaks of the rate of inflation as well as Bayesian change point analysis. Based on
the tests conducted, we conclude that the South African EPPR can be best viewed as a very
persistent but ultimately mean-reverting process. Also, the persistence in the real interest rate
can be tentatively considered as a monetary phenomenon.
Description
Keywords
Real interest rate, Monetary policy, Persistence, Mean reversion
Sustainable Development Goals
Citation
Das, S, Gupta, R, Kanda, PT, Reid, M, Tipoy, CK & Zerihun, MF 2014, 'Real interest rate persistence in South Africa : evidence and implications', Economic Change and Restructuring, vol. 47, no. 1, pp. 41-62.