Does Monetary Policy Credibility Affect Market-Based Inflation Expectations?

  • Eliphas Ndou
  • Nombulelo Gumata
  • Mthokozisi Mncedisi Tshuma


Evidence based on the counterfactual analysis reveals that an unexpected improvement in the monetary policy credibility neutralises the rate of increase of eight-year inflation expectations to the exchange rate depreciation and oil price inflation shocks. In addition, evidence-based on the counterfactual analysis indicates that the dampening effect of the improved monetary policy credibility is bigger when inflation exceeds 6% as eight-year inflation expectations rise by smaller magnitudes to positive inflation shocks. These results imply the credibility of the conduct of monetary policy in minimising the deviations of inflation from the target in the high inflation regime affect the rate at which market-based inflation expectations react to positive inflation shocks.


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Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Eliphas Ndou
    • 1
  • Nombulelo Gumata
    • 2
  • Mthokozisi Mncedisi Tshuma
    • 3
  1. 1.South African Reserve BankPretoriaSouth Africa
  2. 2.PretoriaSouth Africa
  3. 3.National Planning Commission SecretariatPretoriaSouth Africa

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