South Africa: The Cyclical Behavior of the Markups and its Implications for Monetary Policy

23 Pages Posted: 21 Sep 2011

See all articles by Nir Klein

Nir Klein

International Monetary Fund (IMF)

Date Written: August 2011

Abstract

The study looks at the cyclical behavior of the markups and assesses its impact on inflation dynamics. The analysis finds that the aggregate level of the private sector’s markup is relatively high, thus pointing to the lack of strong competition in South Africa’s product markets. Additionally, the results suggest that the markups tend to move in a countercyclical manner, with a short-term positive impact on inflation. This implies that the countercyclical pattern of the markups is one factor among others that contribute to the relatively weak output gap-inflation co-movement. In the context of South Africa’s inflation targeting framework, the counter-cyclical markups may also generate an asymmetric response of monetary policy to the fluctuations in economic activity.

Keywords: Business cycles, Global competitiveness, Inflation, Manufacturing sector, Monetary policy, Production, Productivity, South Africa

Suggested Citation

Klein, Nir, South Africa: The Cyclical Behavior of the Markups and its Implications for Monetary Policy (August 2011). IMF Working Paper No. 11/204, Available at SSRN: https://ssrn.com/abstract=1930792

Nir Klein (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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