Abstract
This paper analyzes the relationship between the real interest rate and its theoretical determinants. This study augments the Vector Autoregression (VAR) analysis with cointegration and error correction models to provide evidence for the short and long run behavior. The variables included in this model as potential determinants include changes in savings and changes in investment, nominal interest rate and the price level. Some results from this study justify the stance taken by the monetary authorities in South Africa of pursuing the Inflation Targeting Monetary Policy Framework
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