Inflation Targeting and Economic Growth in South Africa – An Econometric Analysis
Inflation Targeting and Economic Growth in South Africa – An Econometric Analysis

Summary/Abstract: The article aims at analyzing the influence of inflation on economic growth in South Africa using quarterly data spanning from 2000-2018. The paper focuses on quantitative research, exploratory research design and a positivism research philosophy with the variables of the consumer price index, inflation, gross domestic product, interest rate and unemployment. The data set comprises quarterly data from 2000 to 2018, extracted from the Statistics South Africa (Stats SA) website and also from the South African Reserve Bank (SARB). The Augmented Dickey-Fuller, Phillips-Perron (PP) and Kwiatkowski, Phillips, Schmidt and Shin (KPSS) tests were conducted. The serial correlation, diagnostic tests, normality test and heteroscedasticity passed expectations of the assumptions. The optimal lag selection was carried out by means of the Akaike Information Criterion (AIC) and the optimal lag length of two was selected. The existence of long-run equilibrium amongst the variables was tested using the Johansen co-integrated test. The VECM results showed that GDP is explained by lagged values of GDP, inflation and the consumer price index control variable in the short run. The relationship between economic growth and inflation targeting found to exist. The analyses in this paper reflected that there is a long-run relationship between inflation targeting and economic growth in South Africa, The study suggests that the monetary policy should be formulated with measures that are innovative to stabilize the exchange rate at a level that can be sustained. Further, the study recommends that the government of South Africa should continually align its economic policies and maintain control measures over the fiscal policy for sustainability.

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