Loud and Clear? Can We Hear When the Sarb Speaks?

Abstract

Inflation targeting is a forward-looking framework for monetary policy that has brought unprecedented transparency to the process of monetary policy. This paper aims to assess the degree to which the South African Reserve Bank's (SARB) Monetary Policy Committee (MPC) has, since the introduction of inflation targeting, successfully communicated to the public its policy analysis, and, in particular, the expected future policy changes. It follows international literature in constructing a numerical index that is used to reflect the information content of the SARB's communications, specifically the monetary policy statements that accompanied each of the MPC meetings since 2000. This method allows us to judge, systematically, the degree to which the MPC has communicated successfully, and the evolution of that success over the past nine years. We find evidence that the MPC has succeeded in signalling their likely future policy decision with consistency over this period. Copyright (c) 2010 The Authors. Journal compilation (c) 2010 Economic Society of South Africa.

The role of financial journalists in the expectations channel of the monetary transmission mechanism

“…The content analysis reveals that journalists in South Africa believe that the SARB pays careful attention to its image, and they have faith in its independence and international credibility. These opinions are supported by empirical evidence that the SARB has a track record of independence (Wessels, 2004), and has built a track record of matching its words with its actions (Reid and Du Plessis, 2010), which has resulted in increasing credibility over time (Coco and Viegi, 2019). In addition, the extent to which inflation expectations of financial market participants 18 are well anchored has been favourably compared with a number of other reputable central banks across the world during the inflation targeting period (Reid, 2009).…”

A Forward Guidance Indicator for the South African Reserve Bank: Implementing a Text Analysis Algorithm

“…In the context of South Africa, the study by Reid and Du Plessis (2010) is the first to construct a FGI. The primary objective of Reid and Du Plessis (2010) is to asses how successful the SARB's monetary policy committee has been in communicating to the public its policy since adopting an inflation targeting framework.…”

“…In the context of South Africa, the study by Reid and Du Plessis (2010) is the first to construct a FGI. The primary objective of Reid and Du Plessis (2010) is to asses how successful the SARB's monetary policy committee has been in communicating to the public its policy since adopting an inflation targeting framework. To this end, Reid and Du Plessis (2010), emulating Rosa and Verga (2007) and Ehrmann and Fratzscher (2007), subjectively construct a (numerical) index of monetary policy "inclination" (i.e., the likelihood of a policy change) for 01/2000 to 06/2009, based on the information content of the SARB's monetary policy statements that accompany each MPC meeting.…”

“…Even though there has been marked interest in quantitatively measuring qualitative forward guidance in recent years, there is, however, no ubiquitous quantitative measure of forward guidance. Notable contributions are that of Jansen and De Haan (2005); Musard-Gies ( 2006); Rosa and Verga (2007); Gerlach (2007); Reid and Du Plessis (2010); and Berger, de Haan, and Sturm (2011). To the best of our knowledge, the paper by Reid and Du Plessis (2010) is the only existing piece of literature that has constructed a quantitative measure of forward guidance for South Africa.…”

“…Notable contributions are that of Jansen and De Haan (2005); Musard-Gies ( 2006); Rosa and Verga (2007); Gerlach (2007); Reid and Du Plessis (2010); and Berger, de Haan, and Sturm (2011). To the best of our knowledge, the paper by Reid and Du Plessis (2010) is the only existing piece of literature that has constructed a quantitative measure of forward guidance for South Africa. More recently, with the expansion of central bank communication (publications in particular), recent technological advances have allowed researchers to analyse the words and phrases used by central banks using semantic-modelling and other text-mining techniques (see, for example, Tobback, Nardelli, and Martens (2017); and Christensen and Rising (2017)).…”