Monetary Policy, Inflation, and Distributional Impact: South Africa’s Case

March 19, 2021

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Format: Chicago

Ken Miyajima. Monetary Policy, Inflation, and Distributional Impact: South Africa’s Case, (USA: International Monetary Fund, 2021) accessed November 12, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The South African Reserve Bank has continued to fulfill its constitutional mandate to protect the value of the local currency by keeping inflation low and steady. This paper provides evidence that monetary policy tightening aimed at maintaining low and stable inflation could at the same time reduce consumption inequality over a 12–18 month horizon, commonly understood as the transmission lag of monetary policy action to the real economy, and similar to the distance between survey waves used in the analysis. In response to “exogenous” monetary policy tightening, the real consumption of individuals at lower ends of the consumption distribution declines relatively modestly, or even increases. With greater reliance on government transfers, thus smaller reliance on labor income, and relatively larger food consumption, these individuals appear to benefit mainly from lower inflation. By contrast, the real consumption of individuals at higher ends of the consumption distribution is more likely to decline due to lower labor income, weaker asset price performance, and higher debt service cost.

Subject: Central bank policy rate, Consumption, Economic sectors, Financial crises, Financial services, Household consumption, Income inequality, Inflation, National accounts, Prices

Keywords: Africa, Central bank policy rate, Consumption, Consumption decile, Consumption ratio, Distributional effects, Food consumption, Household consumption, Income inequality, Index data, Inflation, Monetary policy, Monetary policy shock, South Africa, South Africa.

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/078
Stock No:

WPIEA2021078
ISBN:

9781513574356
ISSN:

1018-5941

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