Communication as a strategic monetary policy tool : an evaluation of the effectiveness of the South African Reserve Bank's communication

Reid, Monique Brigitte (2011-12)

Thesis (PhD)--Stellenbosch University, 2011.

Thesis

ENGLISH ABSTRACT: The effectiveness of monetary policy depends importantly on the expectations of the private sector, as it is largely through this channel of the transmission mechanism that policy changes are transmitted to long-term interest rates. This has increased the emphasis on the role of central bank communication as a monetary policy tool. Successful communication is essential both to enhance the effectiveness of monetary policy and to build support for the institutional framework within which monetary policy is implemented. While the large and growing literature on central bank communication over the past decade has delivered strong support for the important role of central bank communication, there is less agreement about what the optimal communication strategy is. Furthermore, research has been limited mainly to studies of communication between central banks and the financial markets. In an evaluation of progress in the literature, Blinder et al. (2008) highlight the need to examine the interaction between central banks and the rest of the private sector (the general public) as well. The objective of this PhD dissertation is to evaluate the South African Reserve Bank’s (SARB’s) use of communication as a monetary policy tool. Special focus is given to communication with the inattentive general public, who set prices in the labour market and the market for goods and services. Different aspects of the SARB’s communication were studied, including the consistency of the South African Reserve Bank’s communication, the transmission of this communication via the media to the general public, and the process by which the general public gathers and processes the information on inflation. An evaluation of the SARB’s communications (its original messages) provided some evidence that the SARB has succeeded in communicating consistently over the inflation targeting period. This was followed by an assessment of the role of the media in transmitting the original communications to the general public. The results suggest that South African media reports generally show a lack of critical assessment of monetary policy decisions and that the inter-meeting communication by the SARB is ineffective at influencing these. An important challenge is for the SARB to consider how it can participate more actively in the economic discussion at this level and how it can build productive strategic relationships with the media. The final section of this dissertation explores the process by which the general public forms its inflation expectations, relying on epidemiological models to describe the spread of inflation information and to estimate the speed at which the general public, in aggregate, updates their inflation expectations. This estimate of the speed of adjustment will be valuable to future research that aims to build a Phillips curve in a new way for South Africa. A well-modelled Phillips curve will both improve the monitoring of the impact of monetary policy and inform future policy design and implementation.

AFRIKAANSE OPSOMMING: Die doeltreffendheid van die monetêre beleid is beduidend afhanklik van die verwagtinge in die privaat sektor, aangesien beleid hoofsaaklik deur hierdie kanaal langtermyn rentekoerse beïnvloed. Hierdie bewustheid het die klem op die rol van sentrale bank kommunikasie as ‘n monetêre instrument versterk. Suksesvolle kommunikasie is noodsaaklik om beide die effektiwiteit van monetêre beleid te verseker sowel as om ondersteuning vir die institusionele raamwerk waarbinne die monetêre beleid geïmplimenteer word, te bou. Hoewel daar ‘n groot en groeiende literatuur is wat die belangrikheid van sentrale bank kommunikasie oor die afgelope dekade beklemtoon, is daar nie eenstemmigheid oor wat die optimale kommunikasie strategie behels nie. Daarbenewens is meeste studies beperk tot die kommunikasie tussen monetêre owerhede en die finansiële sektor. In ‘n evaluering van die literatuur het Blinder et al. (2008) die noodsaaklikheid beklemtoon om die wisselwerking tussen monetêre owerhede en die res van die privaat sektor (die publiek) te bestudeer. Die doel van hierdie proefskrif is om die Suid-Afrikaanse Reserwebank (SARB) se gebruik van hierdie kommunikasie instrument te evalueer. Spesiale aandag word geskenk aan kommunikasie met die onoplettende publiek wat pryse bepaal in die arbeidsmark en markte vir goedere en dienste. Verskillende aspekte van die SARB se kommunikasie strategie word bestudeer, insluitende die konsekwentheid van kommunikasie, die oordrag van hierdie kommunikasie via die media aan die publiek, asook die proses waarmee die publiek informasie rakende inflasie versamel en verwerk. ‘n Evaluering van die SARB se kommunikasie (die oorspronklike boodskappe) lewer bewys dat die SARB daarin geslaag het om konsekwent te kommunikeer tydens die inflasie teikeningsperiode. Dit word gevolg deur ‘n evaluering van die rol van die media om oorspronklike informasie suskesvol aan die publiek oor te dra. Die resultate dui daarop dat berigte in die Suid Afrikaanse media oor die algemeen aan kritiese evaluering van die monet.re beleidsbesluite ontbreek en die SARB se kommunikasie tussen monetêre beleidsvergaderings is ook oneffektief gevind. ‘n Belangrike uitdaging vir die SARB is dus om te bepaal hoe dit op hierdie vlak tot die ekonomiese debat kan toetree en hoe dit produktiewe strategiese verhoudings met die media kan bou. Die laaste afdeling van die proefskrif bestudeer die proses waarvolgens die publiek hul inflasieverwagtinge formuleer deur gebruik te maak van epidemiologiese modelle wat die verspreiding van inflasie verwagtinge, asook die spoed waarteen die publiek oor die algemeen hul inflasieverwagtinge opdateer, beskryf. Die snelheid waarmee die publiek hul verwagtinge opdateer behoort veral van waarde te wees vir toekomstige studies wat poog om ‘n Phillips kurwe met ‘n nuwe aanslag vir Suid Afrika te skort. ‘n Goed geformuleerde Phillips kurwe sal monitering van monetêre beleide se impak verbeter, en sal ook as ‘n goeie riglyn vir toekomstige beleidsontwerp en -implimentering dien.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/17787
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