Monetary policy reaction function pre and post the global financial crisis

This paper analyses the monetary policy reaction function pre and post the recent global financial crisis in South Africa. This is achieved by comparing the reaction function of the the monetary policy interest rate to changes in the target variables that comprise the inflation rate, output gap and financial stress index pre and post the recent global financial crisis. The results show a negligible reaction of the monetary policy to changes in inflation in the pre and post the recent global financial crisis period. The results further show a relatively loose monetary policy stance during the financially stressful economic conditions in the pre and post the recent global financial crisis period. Most importantly, the results show that the reaction of monetary policy to changes in the target variables pre the recent global financial crisis period has not changed significantly compared to post the recent global financial crisis period. Therefore the paper concludes that there is no material difference in the conduct of monetary policy by the monetary authority in South Africa pre and post the recent global financial crisis.