Inflation‐Output Trade‐Off in South Africa: Is the Phillips Curve Symmetric?

Abstract

AbstractThis study sets out to investigate whether the inflation‐output trade‐off in South Africa is symmetric or asymmetric; and if asymmetric, whether it is convex or concave. A New Keynesian dynamic stochastic general equilibrium model calibrated on South African data reveals that a negative demand shock reduces inflation and output while a positive demand shock of the same magnitude leads to a smaller increase in inflation and a larger increase in output, indicating that the inflation–output relationship in the country is concave asymmetric. These findings corroborate estimation results of the inflation‐expectations augmented Phillips curve conducted using difference GMM on quarterly data.