Title: South Africa’s monetary policy independence: evidence from a Global New-Keynesian DSGE model
Abstract: We study the response of South African monetary policy decisions to foreign monetary policy shocks.We estimate the extent of foreign monetary policy pass-through by augmenting standard Taylor rules and comparing the results within the context of a Global New-Keynesian Dynamic Stochastic General Equilibirum (DSGE) model.The general equilibrium model captures important spill-over effects that would otherwise have been ignored in a single equation setup.The results show that the relationship between foreign monetary policy shocks and South African interest rates is complicated -South Africa does not import foreign monetary policy directly, but is still affected.Except for the U.S. an increase in foreign interest rates lead to a decrease in South African interest rates -highlighting the complex channels that monetary policy authorities have to monitor outside of its economy.