Examining asymmetric effects in the South African Phillips curve: evidence from logistic smooth transition regression models

Abstract

This study contributes to the foregoing literature by investigating asymmetric behaviour within the South African short-run Phillips curve for three versions of the Phillips curve specification namely; the New Classical Phillips curve, the new Keynesian Phillips curve and the hybrid new Keynesian Phillips curve. To this end, we employ a logistic smooth transition regression (LSTR) econometric model to each of the aforementioned versions of the Phillips curve specifications for quarterly data spanning from 1970:01 to 2014:01 and thus endeavour into determining which version of the Phillips curve best suites the employed data. Our empirical results indicate that both the marginal-cost-based as well as the output gap-based versions of the hybrid new Keynesian Philips curve provide a good fit for South African data. Therefore, our empirical results indicate that monetary policy in South Africa has an influence on the demand side of the economy through inflation inertia and inflation expectations whilst appearing to exhibit no significant effects on the supply side of the economy.