Central Banks’ Response to Inflation, Output Gap, and Exchange Rate in Nigeria and South Africa

In Africa, a number of countries like South Africa have adopted inflation targeting. In Nigeria, different monetary policy regimes have been adopted over the years with rather unsatisfactory success. This study examines inflation targeting in Nigeria and South Africa, using fully modified least squa...

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Autor principal:	Olusegun Vincent
Formato:	article
Lenguaje:	EN
Publicado:	Taylor & Francis Group 2021
Materias:	central bank exchange rate fm-ols inflation inflation targeting monetary policy output gap taylor rule Business HF5001-6182 Management. Industrial management HD28-70
Acceso en línea:	https://doaj.org/article/a313249db6f34127ad699a5ac0afca9a
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id	oai:doaj.org-article:a313249db6f34127ad699a5ac0afca9a
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spelling	oai:doaj.org-article:a313249db6f34127ad699a5ac0afca9a2021-12-02T17:09:55ZCentral Banks’ Response to Inflation, Output Gap, and Exchange Rate in Nigeria and South Africa2331-197510.1080/23311975.2021.1964689https://doaj.org/article/a313249db6f34127ad699a5ac0afca9a2021-01-01T00:00:00Zhttp://dx.doi.org/10.1080/23311975.2021.1964689https://doaj.org/toc/2331-1975In Africa, a number of countries like South Africa have adopted inflation targeting. In Nigeria, different monetary policy regimes have been adopted over the years with rather unsatisfactory success. This study examines inflation targeting in Nigeria and South Africa, using fully modified least square to estimate a modified Taylor rule for the period 1970 to 2016. The study unravels evidence of a significant response of inflation and squared inflation to policy interest rates in South Africa, but not in Nigeria. Overall, South Africa’s central bank places much emphasis on inflation targeting in setting interest rates, which Nigeria does not. Further, for South Africa, output gap is significant, while it is not significant for Nigeria. The study also reveals that exchange rate, openness to trade and international reserves play significant roles in central bank policy in both countries. In other words, there is need for central banks to adopt an eclectic approach, setting the monetary policy rule to adjust to any observed disequilibrium between output gap, inflation, exchange rate, foreign reserves and openness to trade.Olusegun VincentTaylor & Francis Grouparticlecentral bankexchange ratefm-olsinflationinflation targetingmonetary policyoutput gaptaylor ruleBusinessHF5001-6182Management. Industrial managementHD28-70ENCogent Business & Management, Vol 8, Iss 1 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	central bank exchange rate fm-ols inflation inflation targeting monetary policy output gap taylor rule Business HF5001-6182 Management. Industrial management HD28-70
spellingShingle	central bank exchange rate fm-ols inflation inflation targeting monetary policy output gap taylor rule Business HF5001-6182 Management. Industrial management HD28-70 Olusegun Vincent Central Banks’ Response to Inflation, Output Gap, and Exchange Rate in Nigeria and South Africa
description	In Africa, a number of countries like South Africa have adopted inflation targeting. In Nigeria, different monetary policy regimes have been adopted over the years with rather unsatisfactory success. This study examines inflation targeting in Nigeria and South Africa, using fully modified least square to estimate a modified Taylor rule for the period 1970 to 2016. The study unravels evidence of a significant response of inflation and squared inflation to policy interest rates in South Africa, but not in Nigeria. Overall, South Africa’s central bank places much emphasis on inflation targeting in setting interest rates, which Nigeria does not. Further, for South Africa, output gap is significant, while it is not significant for Nigeria. The study also reveals that exchange rate, openness to trade and international reserves play significant roles in central bank policy in both countries. In other words, there is need for central banks to adopt an eclectic approach, setting the monetary policy rule to adjust to any observed disequilibrium between output gap, inflation, exchange rate, foreign reserves and openness to trade.
format	article
author	Olusegun Vincent
author_facet	Olusegun Vincent
author_sort	Olusegun Vincent
title	Central Banks’ Response to Inflation, Output Gap, and Exchange Rate in Nigeria and South Africa
title_short	Central Banks’ Response to Inflation, Output Gap, and Exchange Rate in Nigeria and South Africa
title_full	Central Banks’ Response to Inflation, Output Gap, and Exchange Rate in Nigeria and South Africa
title_fullStr	Central Banks’ Response to Inflation, Output Gap, and Exchange Rate in Nigeria and South Africa
title_full_unstemmed	Central Banks’ Response to Inflation, Output Gap, and Exchange Rate in Nigeria and South Africa
title_sort	central banks’ response to inflation, output gap, and exchange rate in nigeria and south africa
publisher	Taylor & Francis Group
publishDate	2021
url	https://doaj.org/article/a313249db6f34127ad699a5ac0afca9a
work_keys_str_mv	AT olusegunvincent centralbanksresponsetoinflationoutputgapandexchangerateinnigeriaandsouthafrica
_version_	1718381514777952256

Central Banks’ Response to Inflation, Output Gap, and Exchange Rate in Nigeria and South Africa

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