Inflation and unemployment in the South African democratic era: is there any trade-off
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Date
2021
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Publisher
University of Zululand
Abstract
Achieving and maintaining price stability as well as the creation of sustainable employment are two of the most emphasized objectives of the South Africa Reserve Bank. South Africa has consistently suffered double-digit unemployment rates and unstable price levels, with a resultant stifling of economic growth rates. As a result of these continuous economic issues, South Africa’s central bank policymakers have come under scrutiny regarding the adopted policy framework, which seems to be failing the economy with the growing unemployment rate and overall price level increments to prevail and triggering worsened standards of living for citizens. In an attempt to close the gap in the existing literature, this study examines the inflation unemployment in democratic South Africa.
This is achieved through examining the applicability of both the Phillips Curve and the New Keynesian Phillips Curve to determine whether these macroeconomic theories can be adopted in the fight against these economic issues facing South Africa. The Autoregressive Distributed Lag modelling technique is adopted by this study, where quarterly data spanning from 1994Q1 to 2019Q4 is analysed. Findings dismiss the existence of both the Phillips Curve and the New Keynesian Phillips Curve in South Africa. A recommendation to policymakers would be to focus less on inflation targeting, as it was discovered to have a small influence over the unemployment rate. Rather, given the finding that GDP was positively related to inflation, allowing inflation to move more freely could enable a stable economic growth that has the potential of reducing unemployment. This study further recommends that the SARB bank should for targeting output instead.
Description
A dissertation submitted in fulfilment of the requirement for the Degree of Master of Commerce in the Department of Economics, Faculty of Commerce, Administration and Law, at the University of Zululand, 2020.
Keywords
Inflation, Unemployment, South African Democratic Era, South Africa Reserve Bank