CID Working Paper No. 165

Estimating SARB's Policy Reaction Rule*

Alberto Ortiz and Federico Sturzenegger

May, 2008

A publication of the CID South Africa Growth Initiative


This paper uses a Dynamic Stochastic General Equilibrium (DSGE) model to estimate the South African Reserve Bank’s (SARB) policy reaction rule. We find that the SARB has a stable rule very much in line with those estimated for Canada, UK, Australia and New Zealand. Relative to other emerging economies the policy reaction function of the SARB appears to be much more stable with a consistent anti-inflation bias, a somewhat larger weight on output and a very low weight on the exchange rate.

Keywords: monetary policy rules, exchange rates, structural estimation, Bayesian analysis

JEL codes: C32, E52, F41, O57

* Originally published as: Alberto Ortiz and Federico Sturzenegger (2007), “Estimating SARB’s Policy Reaction Rule,” The South African Journal of Economics 75 (4), 659-680.

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