Eric Schaling | University of the Witwatersrand (original) (raw)

Papers by Eric Schaling

Social Science Research Network, 2006

RePEc: Research Papers in Economics, Nov 11, 2005

SSRN Electronic Journal, 2003

International Journal of Central Banking, 2019

In this paper we estimate a Phillips curve for South Africa using a bounded random walk model. Ce... more In this paper we estimate a Phillips curve for South Africa using a bounded random walk model. Central bank credibility, the slope of the Phillips curve, the natural rate of unemployment and the central bankÂ’s inÂ‡ation target band are time-varying. We Â…find that the slope of the Phillips curve has Â‡attened since the mid 2000s - particularly after the Great Recession - which is in line with the Â…findings in most advanced countries. Our results do not lend support to the hypothesis that the ability of the SARB to hit its inÂ‡flation target has decreased. With respect to the faith in the IT regime as measured by the degree to the extent of which inÂ‡flation expectations are anchored to the target our results indicate that the SARBÂ’s credibility has decreased from 1994 to 2001, remained constant from 2001 to 2008, and eventually increased around 2008. This pattern is different from that of advanced countries where expectations have become better anchored relatively early in the IT...

Journal of Economic and Financial Sciences, 2007

A stylised fact of monetary policymaking is that central banks do not immediately respond to new ... more A stylised fact of monetary policymaking is that central banks do not immediately respond to new information but seem instead to prefer to wait until sufficient ‘evidence’ to warrant a change has accumulated. However, theoretical models of inflation targeting imply that an optimising central bank should continuously respond to shocks. This article attempts to explain this stylised fact by introducing a small menu cost which is incurred every time the central bank changes the interest rate. It is shown that this produces a relatively large range of inaction because this cost will induce the central bank to take the option value of the status quo into account. In other words, because action is costly, the central bank will have an incentive to wait and see whether or not the economy will move closer to the inflation target of its own accord. Next, the article analyses the implications for the time series properties of interest rates. In particular, we examine the effect of the interes...

South African Journal of Economic and Management Sciences, 2014

We find that for the period 1994-2011 there is robust statistical evidence that, in the long run,... more We find that for the period 1994-2011 there is robust statistical evidence that, in the long run, net exports are boosted by a weaker real effective exchange rate. However, this effect does not hold in the short run. We thus find empirical evidence supporting the J-curve effect for South Africa.

South African Journal of Economic and Management Sciences, 2011

This paper examines the implications of the expectations theory of the term structure of interest... more This paper examines the implications of the expectations theory of the term structure of interest rates for the implementation of inflation targeting. We show that the responsiveness of the central bank’s instrument to the underlying state of the economy is increasing in the duration of the long-term bond. On the other hand, an increase in duration will make long-term inflationary expectations - and therefore also the long-term nominal interest rate - less responsive to the state of the economy. The extent to which the central bank is concerned with output stabilisation will exert a moderating influence on the central bank’s response to leading indicators of future inflation. However, the effect of an increase in this parameter on the long-term nominal interest rate turns out to be ambiguous. Next, we show that both the sensitivity of the nominal term spread to economic fundamentals and the extent to which the spread predicts future output, are increasing in the du...

SSRN Electronic Journal, 2004

Heterogeneous information about the term structure, least-squares learning and optimal rules for ... more Heterogeneous information about the term structure, least-squares learning and optimal rules for inflation targeting The views expressed are those of the authors and do not necessarily reflect the views of the Bank of Finland.

Journal of Economic Dynamics and Control, 2010

In this paper we analyze disinflation policy when a central bank has imperfect information about ... more In this paper we analyze disinflation policy when a central bank has imperfect information about private sector inflation expectations but learns about them from economic outcomes, which are in part the result of the disinflation policy. The form of uncertainty is manifested as uncertainty about the effect of past disinflation policy on current output gap. Thus current as well as past policy actions matter for output gap determination. We derive the optimal policy under learning (DOP) and compare it two limiting cases-certainty equivalence policy (CEP) and cautionary policy (CP). It turns out that under the DOP inflation stay between the levels implied by the CEP and the CP. A novel result is that this holds irrespective of the initial level of inflation. Moreover, while at high levels of inherited inflation the DOP moves closer to the CEP, at low levels of inherited inflation the DOP resembles the CP.

Journal of Economic Dynamics and Control, 2014

The paper examines the effect of trend productivity growth on the determinacy and learnability of... more The paper examines the effect of trend productivity growth on the determinacy and learnability of equilibria under alternative monetary policy rules. It shows that under a policy rule that responds to current period inflation and the output gap a higher trend growth rate relaxes the conditions for determinacy and learnability. Results are mixed for other policy rules. Under the expectations-based rule, trend growth reduces the scope for determinacy but it relaxes the conditions for learnability. Under the lagged-data-based rule rule trend growth reduces the scope for determinacy and learnability.

On the basis of a single-stage Phillips-curve monetary policy game with extrinsic uncertainty we ... more On the basis of a single-stage Phillips-curve monetary policy game with extrinsic uncertainty we derive several propositions concerning the relationship between cen[ral bank independence and (the variance of) output and inflation. These propositions are tested for twelve industrial countries for the post-Bretton-Woods period (1972-1991). in testing the game-theoretic model, we use several central bank independence measures based on the central bank laws of the sample countries. 1EL Classification Numbers: C72, E58 Alternatively, the loss-function could be assumed quadratic in both the deviations of employment and the real wage from certain target levels. For an analysis along these lines see Funke (1992). M Aetual output and employment will equal their natural rates when all expectauons are fulfilled. Hence, the natural rete of employment equals I and the natural rate of uutput is Q P t ftt. '-Demand shocks can be included in the analysis by extending the model with an aggregate-0emand curve. This would complicate [he algebra without affecting our results. '~This figuro is based on a similar ona in Btanchard and Fischer (1989), p. 597.

South African Journal of Economics, 2015

We analyse determinacy and stability under learning (E‐stability) of rational expectations equili... more We analyse determinacy and stability under learning (E‐stability) of rational expectations equilibria in a new Keynesian model of inflation and unemployment, where labour market frictions due to costs of hiring workers play an important role. We derive results for alternative specifications of monetary policy rules and alternative values of hiring costs as a percentage of gross domestic product. We find that in general the region of indeterminacy and E‐instability in the policy space increases with hiring costs. Thus, higher hiring costs – consistent with European and South African “sclerotic” labour market institutions – seem to play an important part in explaining inflation and unemployment instability. Moreover, under lagged data‐based rules, the area where monetary policy delivers both determinacy and E‐stability shrinks. These rules also perform worse according to these two dimensions when hiring costs go up. Finally, under expectations‐based rules an additional explosive regio...

Economic Modelling, 2015

This paper examines the relationship between in ‡ation and in ‡ation expectations of analysts, bu... more This paper examines the relationship between in ‡ation and in ‡ation expectations of analysts, business, and trade unions in South Africa during the in ‡ation targeting (IT) regime. We consider in ‡ation expectations based on the Bureau of Economic Research (BER) quarterly survey observed from 2000Q1 to 2013Q1. We estimate in ‡ation expectations of individual agents as the weighted average of lagged in ‡ation and the in ‡ation target. The results indicate that expectations are heterogeneous across agents. Expectations of price setters (business and unions) are closely related to each other and are higher than the upper bound of the of-…cial target band, while expectations of analysts are within the target band. In addition, expectations of price setters are somewhat related to lagged in ‡ation and the opposite is true for analysts. The results reveal that the SARB has succesfully anchored expectations of analysts but that price setters have not su¢ ciently used the focal point implicit in the in ‡ation targeting regime. The implication is that the SARB may be pushed to accommodate private agents'expectations.

Journal of Money Credit and Banking, 2003

We Þrst demonstrate that EHS' Taylor approximations may lead to wrong conclusions.

Public Choice, 2000

This paper develops a graphical method to determinethe optimal degree of central bank conservativ... more This paper develops a graphical method to determinethe optimal degree of central bank conservativeness inan open economy. Unlike Rogoff (1985a), the upper andlower bounds of the interval containing the optimaldegree of conservativeness are expressed in terms ofthe structural parameters of the model. It is shownthat optimal central bank conservativeness is higher,the higher the natural rate of unemployment, thegreater the benefits of unanticipated inflation, theless inflation-averse society, the smaller thevariance of productivity shocks, the smaller realexchange rate variability and the smaller the opennessof the economy. These propositions are tested fornineteen industrial countries for the period1960–1993. In testing the model we employ a latentvariables method (LISREL) in order to distinguishbetween actual and optimal monetary regimes.

The theoretical argument for central bank independence is based on the idea that even if the gove... more The theoretical argument for central bank independence is based on the idea that even if the government represents people&#x27;s preferences over inflation and output it has an incentive to renege from prearranged plans to gain a short run boost to output. This incentive leads to higher than desired inflation. One solution to this credibility problem is to give control of monetary policy to an independent central bank that is more averse to inflation than society. Central bank independence thus reduces society&#x27;s credibility problem but this may be at the expense of less flexible countercyclical monetary policy. The aim of this paper is to find the correct balance between credibility and flexibility, ie the optimal degree of central bank independence. The first part of the paper sets out an open economy model and identifies some macroeconomic factors that influence the optimal degree of independence. It finds that the optimal degree of independence increases when; 1) the NAIRU is higher, 2) the benefits of unanticipated inflation are greater, 3) society is less inflation-averse, 4) productivity shocks have smaller variance, 5) the real exchange rate has less variability, 6) the economy is less open. The second part of the paper estimates the relationship between these six factors and measures of central bank independence for 19 industrial countries using a latent variables estimation technique. It finds that, in general, the actual degree of independence is related to these six factors and so the institutional arrangements in most countries are close to the optimum. The main exceptions are Germany and Switzerland - that seem to have an excessively high degree of independence - and Australia, Norway, Sweden and the UK - which have a lower than optimal degree of independence.

SSRN Electronic Journal, 1999

Public Choice, 1996

The present paper uses a paneldata estimation technique to combine the time series for individual... more The present paper uses a paneldata estimation technique to combine the time series for individual countries (Australia, Canada, France, Germany, Italy, Japan, the Netherlands, Switzerland, the United Kingdom and the United States). We postulated the response of central banks in these countries to inflation, economic growth and current account surplus given the constraints to be the same among the sample countries. Differences between central bank independence come forward in a different structural pressure to lower or raise money market rates in these countries. The empirical results in this study coincide remarkably well with the legal indices of central bank independence.