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Does the Persistence of Output Growth Depend on Inflation Regimes?

  • Eliphas Ndou
  • Thabo Mokoena
Chapter

Abstract

Evidence reveals that the sizes of output persistence measures are smaller when inflation is above the 6 % threshold relative to when inflation is less or equal to 6 %. We also determine whether the average frequency of price changes based on Kiley (2000) differs between the high inflation regime and the low regimes. Evidence shows that the average frequency of price changes is relatively shorter in the high inflation regime than in the low regime. Evidence shows that increased price flexibility in the high inflation regime weakens the responses of household consumption growth to an expansionary monetary policy shock. However, the reduced price flexibility in the low inflation regime magnifies the household consumption growth increase due to expansionary monetary policy shocks. From a policy perspective, this implies that an expansionary monetary policy shock, when inflation is below 6 %, will stimulate household consumption growth more than raising the inflation rate because prices are less flexible.

References

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Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Eliphas Ndou
    • 1
    • 3
    • 4
  • Thabo Mokoena
    • 2
  1. 1.Economic Research DepartmentSouth African Reserve BankPretoriaSouth Africa
  2. 2.Department of Economic, Small Business Development, Tourism and Environmental AffairsFree State Provincial GovernmentBloemfonteinSouth Africa
  3. 3.School of Economic and Business SciencesUniversity of the WitwatersrandJohannesburgSouth Africa
  4. 4.Wits Plus, Centre for Part-Time StudiesUniversity of the WitwatersrandJohannesburgSouth Africa

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