Abstract
AbstractThis paper examines the relationship between inflation and inflation expectations inSouthAfrica. We use inflation expectations derived from the quarterly surveys conducted by the Bureau of Economic Research from 2001Q1 to 2011Q4 . Using these data, we estimate the model assuming that private sector expectations are a linear function of the inflation target and lagged inflation. The results indicate that economic agents' expectations largely depend on lagged inflation. This suggests that theSouthAfrican Reserve Bank (SARB) has not been successful in anchoring expectations of the private sector since the adoption of the inflation targeting (IT) regime in 2000. We also find evidence indicating that theSARB's implicit inflation target lies above the upper bound of the officialITband. Finally, it appears that theSARBhas been more concerned about output stabilisation than inflation stabilisation.
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