Structural Change and Nonlinearities in a Phillips Curve Model for South Africa

18 Pages Posted: 29 Feb 2008

Date Written: October 2006

Abstract

The main objective of this article is to reexamine the role of the Phillips curve for monetary policy analysis in South Africa by augmenting the model for major structural changes in the balance-of-payments and labor market. The main findings show that a linear Phillips curve with an output gap in levels accurately describes South Africa's non-trended inflation experience during 1971(Q1)-1984(Q4), whereas a piecewise concave curve with an output gap in growth rates correctly predicts the decelerating inflation pattern during 1986(Q1)-2001(Q2). The concave curve after 1985 imparts a deflationary bias that requires expansionary demand-side policies to stabilize the inflation rate. An important corollary is that expansionary demand-side policies can raise the average growth rate of the output gap over time without sacrificing stabilization objectives.

JEL Classification: C22, E3, E52

Suggested Citation

Nell, Kevin S., Structural Change and Nonlinearities in a Phillips Curve Model for South Africa (October 2006). Contemporary Economic Policy, Vol. 24, Issue 4, pp. 600-617, 2006, Available at SSRN: https://ssrn.com/abstract=1095932 or http://dx.doi.org/10.1093/cep/byl004

Kevin S. Nell (Contact Author)

Universidade do Porto ( email )

Rua Dr. Roberto Frias
4200-464 Porto
Portugal

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