Mlangeni, Thobani; Bu helezi, Eugene Msizi
A icle
Mone a y policy and in la ion expec a ions: Impac and
causal analysis o he e ogeneous economic agen s'
expec a ions in Sou h A ica
Jou nal o Applied Economics
P o ided in Coope a ion wi h:
Uni e si y o CEMA, Buenos Ai es
Sugges ed Ci a ion: Mlangeni, Thobani; Bu helezi, Eugene Msizi (2024) : Mone a y policy and in la ion
expec a ions: Impac and causal analysis o he e ogeneous economic agen s' expec a ions in Sou h
A ica, Jou nal o Applied Economics, ISSN 1667-6726, Taylo & F ancis, Abingdon, Vol. 27, Iss. 1, pp.
1-28,
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Jou nal o Applied Economics
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Mone a y policy and infla ion expec a ions: impac
and causal analysis o he e ogeneous economic agen s’
expec a ions in Sou h A ica
Thobani Mlangeni & Eugene Msizi Bu helezi
To ci e his a icle: Thobani Mlangeni & Eugene Msizi Bu helezi (2024) Mone a y policy
and infla ion expec a ions: impac and causal analysis o he e ogeneous economic
agen s’ expec a ions in Sou h A ica, Jou nal o Applied Economics, 27:1, 2289724, DOI:
10.1080/15140326.2023.2289724
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RESEARCH ARTICLE
Mone a y policy and in la ion expec a ions: impac and
causal analysis o he e ogeneous economic agen s’
expec a ions in Sou h A ica
Thobani Mlangeni and Eugene Msizi Bu helezi
Depa men o Economics and Finance, he Uni e si y o F ee S a e, Bloem on ein, Sou h A ica
ABSTRACT
This s udy employs a Vec o E o Co ec ion (VEC) model o in es-
iga e he dynamic ela ionship be ween changes in mone a y
policy and in la ion expec a ions wi hin a ious sec o s. The analy-
sis encompasses da a om he inancial, business, and ade union
sec o s, spanning he i s qua e o 2000 o he ou h qua e o
2022. Resul s indica e ha ade unions exhibi sensi i i y o p e-
ious changes in he epo a e. In he long e m, mone a y policy
in luences in la ion expec a ions wi hin he inancial sec o . In con-
as , ele a ed epo a es in he business sec o co ela e wi h
diminished expec a ions, subsequen ly impac ing wage dynamics.
G ange causali y es s es ablish a signi ican link be ween epo a e
shi s and in la ion expec a ions in he business and ade union
sec o s. The s udy ad ances he unde s anding o di e se sec o
esponses o mone a y policy’s impac on in la ion expec a ions,
and implemen sec o -speci ic policy adjus men s ha conside he
unique dynamics o each sec o , ensu ing a mo e a ge ed and
e ec i e esponse.
ARTICLE HISTORY
Recei ed 21 June 2023
Accep ed 23 No embe 2023
KEYWORDS
Mone a y policy; in la ion
expec a ions
1. In oduc ion
In la ion expec a ions play a c ucial ole in shaping economic beha iou and ou comes.
They in luence consume spending, in es men decisions, wage nego ia ions, and inan-
cial ma ke dynamics. Unde s anding he o ma ion and dynamics o in la ion expec a-
ions is he e o e o pa amoun impo ance o policymake s, as i a ec s hei abili y o
achie e hei mone a y policy objec i es (Ca alho e al., 2023; Cho & Oh, 2023; Coibion
e al., 2020; F acasso & P obo, 2017). Main aining p ice s abili y is he key objec i e o he
Sou h A ican Rese e Bank (SARB) (SARB, 2023). Since adop ing in la ion a ge ing in
Sou h A ica in 2000, he SARB has aimed o achie e p ice s abili y by se ing a a ge
ange o in la ion. Howe e , he e ha e been conce ns abou he e ec i eness o his
egime in ancho ing in la ion expec a ions and guiding p i a e-sec o beha iou . In
addi ion, he SARB needs o conside in la ion expec a ions, which a e he belie s and
pe cep ions o indi iduals, businesses, and in es o s abou he u u e le el o in la ion.
CONTACT Eugene Msizi Bu helezi [email p o ec ed] Depa men o Economics and Finance, The Uni e si y
o F ee S a e, Bloem on ein, Sou h A ica
JOURNAL OF APPLIED ECONOMICS
2024, VOL. 27, NO. 1, 2289724
h ps://doi.o g/10.1080/15140326.2023.2289724
© 2023 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup.
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/
licenses/by/4.0/), which pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly
ci ed. The e ms on which his a icle has been published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o
wi h hei consen .
Empi ical s udies ha e shed ligh on se e al signi ican indings. Fi s , Kabundi and
Schaling (2013) ound ha Lagged in la ion p ima ily in luences in la ion expec a ions in
Sou h A ica. This inding sugges s a need o mo e ancho ing o expec a ions by he
SARB, and aises conce ns abou he e ec i eness o he SARB’s mone a y policy in
guiding and shaping in la ion expec a ions. Second, Gab iel Caldas and Rodol o Tomás
Da Fonseca (2015) highligh he impac o cen al bank communica ions on he expec a-
ions o inancial ma ke expe s. These indings unde sco e he c i ical ole o he cen al
bank’s clea and e ec i e communica ion s a egies in shaping in la ion expec a ions.
The s udy emphasises he ole o anspa ency and c edibili y in cen al bank commu-
nica ions, as hey can signi ican ly in luence ma ke pa icipan s’ expec a ions.
Fu he mo e, Maule and Hube (2016) explo e he esponse o in la ion expec a ions o
mone a y policy shocks. Thei esea ch p o ides insigh s in o how changes in mone a y
policy a ec in la ion expec a ions in Sou h A ica. Unde s anding hese dynamics is c ucial
o policymake s as hey seek o manage in la ion and achie e hei mone a y policy
objec i es. While some s udies ha e ound clea e idence suppo ing he e ec i eness o
mone a y policy in ancho ing in la ion expec a ions, o he s udies ha e p esen ed mo e
mixed o unce ain esul s. Fo example, Kabundi e al. (2015) and Becke s and B assil
(2022) epo indings ega ding he ela ionship be ween mone a y policy and in la ion
expec a ions ha need o be cla i ied. The indings indica e he need o u he in es iga-
ion and deepe analysis o unde s and his ela ionship comp ehensi ely. Addi ionally,
some s udies ha e unco e ed he nega i e impac s o con ac iona y mone a y policy
shocks on he e m s uc u e o in la ion expec a ions. Coibion e al. (2020) and Mcneil
(2023), among o he s, highligh how such shocks can dis o and eshape in la ion expec a-
ions, leading o unin ended consequences o economic agen s and inancial ma ke s.
Bu helezi (2023a) examined he impac o money supply on in la ion and economic g ow h
in Sou h A ica om 1990 o 2021 using Ma ko -swi ching dynamic eg ession. The s udy
e ealed a subs an ial mul iplie e ec on GDP and in la ion. Ano he s udy by Bu helezi
(2023b) ocused on in la ion’s impac on unemploymen using he Phillips cu e, inding a
1% inc ease esul ing in a 2.61% inc ease and 0.06% dec ease in unemploymen . Howe e ,
Bu helezi (2023a) and Bu helezi (2023b), wo ks highligh a gap in unde s anding economic
agen in la ion expec a ions, necessi a ing u he explo a ion in he Sou h A ican con ex ..
Figu e 1 shows he economic a iables o in la ion expec a ion and he epo a e. The
economic a iables conside ed a e in l e in la ion expec a ions: inancial analys s:
one yea ahead, in l e b in la ion expec a ions: business ep esen a i es: one yea ahead,
in l e dun in la ion expec a ions: ade union ep esen a i es: one yea ahead, and epo
a e. I is no ed ha ac oss all ca ego ies, he in la ion expansion Figu e 1 diag am (a o c) is
in he high band o 6%. The p oblem iden i ied is wo old- old. Figu e 1 diag am (a o c)
shows ha he epo a e in ecen qua e s has e lec ed a s eep upwa d end. Howe e , his
has ye o be ollowed by a all in in la ion expec a ions. In la ion expec a ions a e also on an
upwa d end. This con adic s he no ion ha when he e is an inc ease in he epo a e,
in la ion expec a ions should all, as sugges ed by Rochon and Olawoye (2012).
I is agains his backg ound ha his pape seeks o in es iga e he impac o he mone a y
a e ( epo a e) on in la ion expec a ions in Sou h A ica o di e en economic agen s,
pa icula ly in he inancial, business and ade unions. Second, he p oblem iden i ied in his
pape is he disc epancy obse ed be ween he expec ed ela ionship be ween in la ion
2T. MLANGENI AND E. M. BUTHELEZI
expec a ions and he epo a e, as pe con en ional wisdom, and he empi ical e idence in
Sou h A ica be ween he i s qua e o 2000 and he second qua e o 2011. Du ing his
pe iod, a coun e in ui i e end eme ged, indica ing ha as in la ion expec a ions inc eased,
he epo a e dec eased, which is con a y o he p e ailing unde s anding, which is he
opposi e. The e o e, his pape aims o in es iga e he causal ela ionship be ween in la ion
expec a ions and he epo a e. By un a elling he causal link be ween hese a iables, his
pape seeks o p o ide insigh s in o he unde lying dynamics and mechanisms ha d i e he
obse ed pa e ns, con ibu ing o a be e unde s anding o he ela ionship be ween in la-
ion expec a ions and he epo a e in Sou h A ica.
Al hough p io esea ch has explo ed he link be ween in la ion expec a ions and mone-
a y policy, he emphasis has equen ly been on b oad indica o s o isola ed economic
domains. This s udy unde akes a mo e comp ehensi e app oach o add ess his limi a ion,
aiming o b idge he gap by del ing in o a me iculous examina ion. This analysis conside s
he iewpoin s o di e se economic s akeholde s – om inancial analys s and business
delega es o ade union ep esen a i es. Signi ican ly, a no able oid exis s o an in-dep h
explo a ion o he causal nexus encompassing he epo a e, in la ion expec a ions, and he
ami ica ions o mone a y policy shocks. This s udy endea ou s o add ess his unme need,
con ibu ing a igo ous and nuanced analysis in es iga ing hese in e connec ed ac o s wi h
heigh ened a en ion. The dis inc i e essence o his s udy lies in i s mul i ace ed examina ion
Figu e 1. Economic a iables o in la ion expec a ion and he epo a e. No e he economic a iables
a e ln in l e , which is he in la ion expec a ions o inancial agen s one yea ahead; ln in l e b,
which is he in la ion expec a ions o business agen s one yea ahead, and ln in l e dunln , which
is he in la ion expec a ions o ade union agen s one yea ahead. On he o he hand, CI is
a con idence in e al, is he il e alue, in l ub is he in la ion uppe band, and in l lb is he
in la ion lowe band. Composed by he au ho s, da a sou ced om (SARB, 2023).
JOURNAL OF APPLIED ECONOMICS 3
o how a ying economic agen s shape hei in la ion expec a ions and eac o changes in he
epo a e. By sc u inising his dynamic om a ious angles, he s udy en iches he unde -
s anding o ansmission mechanisms be ween mone a y policy and in la ion expec a ions. I
p o ides insigh s in o po en ial a ia ions in he e ec i eness o such policies ac oss di e en
sec o s. In essence, he s udy’s pa amoun con ibu ion es s in add essing gaps, conduc ing
an exhaus i e explo a ion, and o e ing no el insigh s in o he in ica e ela ionship be ween
he epo a e, in la ion expec a ions, and mone a y policy implica ions. This dis inc i e
pe spec i e equips policymake s wi h a deepe unde s anding o ansmission channels,
enabling he o mula ion o inely uned s a egies o ancho in la ion expec a ions and
achie e he c ucial goal o sus ainable p ice s abili y.
This pape holds su icien unde s anding alue o s akeholde s, especially policymake s,
in making mo e in o med and e ec i e decisions. Th ough nuanced policy o mula ion by
comp ehending how di e se economic agen s shape hei in la ion expec a ions and eac o
epo a e changes, policymake s can ailo hei s a egies mo e p ecisely. This nuanced
unde s anding enables he design o policies ha align wi h he beha iou s and expec a ions
o speci ic sec o s, enhancing he o e all e ec i eness o mone a y policy. Imp o ed ansmis-
sion mechanisms and a deepe g asp o how in la ion expec a ions espond o changes in he
epo a e enhance he unde s anding o ansmission mechanisms be ween mone a y policy
and economic ou comes. Policymake s can an icipa e how a ious sec o s will likely eac o
policy adjus men s, acili a ing be e p edic ing po en ial ou comes. Recognising he he e o-
genei y o in la ion expec a ions ac oss economic agen s leads o mo e accu a e policymaking.
Policies can be de ised o add ess di e en sec o s’ unique needs and esponses, p omo ing
a balanced and a ge ed app oach. Insigh s in o how in la ion expec a ions in luence eco-
nomic beha iou enable s akeholde s o p edic likely economic esponses o policy changes.
This aids in a oiding unin ended consequences and os e ing s abili y in he economy.
Op imised policy implemen a ion, unde s anding which economic agen s a e mo e sensi i e
o epo a e changes and whose in la ion expec a ions play a mo e signi ican ole in shaping
beha iou , allows policymake s o alloca e esou ces and a en ion mo e e icien ly. This
op imisa ion ensu es ha policies yield desi ed ou comes ac oss a ious sec o s.
Gi en he p oblem s a emen abo e, his pape has he ollowing ques ions. Wha is
he impac o he epo a e on he long- and sho - un in la ion expec a ions in Sou h
A ica? Wha is he causali y e ec be ween he epo a e and in la ion expec a ions in
Sou h A ica? How do epo a e shocks a ec in la ion expec a ions in Sou h A ica?
Based on his ques ion, he ollowing hypo heses we e o mula ed:
Hypo hesis 1 Null: The e is no impac o he epo a e on he long- un in la ion
expec a ions in Sou h A ica.
Al : The e is an impac o he epo a e on long- un in la ion expec a ions in Sou h A ica.
Hypo hesis 2 Null: The e is no causali y e ec be ween he epo a e and in la ion
expec a ion in Sou h A ica.
Al : The e is a causali y e ec be ween he epo a e and in la ion expec a ion in Sou h
A ica.
Hypo hesis 3 Null: Repo a e shocks do no a ec in la ion expec a ions in Sou h A ica.
Al : The e is an e ec o epo a e shocks on in la ion expec a ions in Sou h A ica.
4T. MLANGENI AND E. M. BUTHELEZI
This pape examines he ela ionship be ween epo a e changes and in la ion expec a-
ions ac oss di e en sec o s using a ec o e o co ec ion (VEC) model. The analysis is
based on sec o -speci ic da a om he inancial, business, and ade union sec o s
spanning om 2000 qua e 1 o 2022 qua e 4. In he long un, epo a e changes
in luence in la ion expec a ions in he inancial, business, and ade union sec o s.
Highe epo a es dec ease in la ion expec a ions ac oss all h ee sec o s, albei wi h
a ying coe icien s. This unde sco es he las ing impac o mone a y policy decisions on
in la ion expec a ions in hese sec o s.
Fu he mo e, G ange causali y es s e eal a s a is ically signi ican ela ionship
be ween epo a e changes and in la ion expec a ions in he business and ade union
sec o s. This highligh s he in luence o epo a e luc ua ions on in la ion expec a ions
wi hin hese sec o s. Howe e , he es s do no indica e a s a is ically signi ican G ange
causal ela ionship be ween epo a e changes and in la ion expec a ions in he inancial
sec o .
The pape p o ides e idence o he impac o epo a e changes on in la ion
expec a ions ac oss di e en sec o s. Policymake s can u ilise his in o ma ion o
assess he e ec i eness o epo a e adjus men s in managing in la ion.
Unde s anding he sec o al dynamics o in la ion expec a ions can help cen al
banks make in o med decisions ega ding in e es a es o achie e hei in la ion
a ge s. The pape highligh s he he e ogenei y in he esponse o di e en sec o s
o epo a e changes. The inancial sec o expe iences a ela i ely mino dec ease in
in la ion expec a ions compa ed o he business and ade union sec o s. This di e -
en ia ion sugges s ha sec o -speci ic policies may be wa an ed o add ess he a ied
e ec s o mone a y policy ac ions. Ma ke pa icipan s, such as in es o s and busi-
nesses, can bene i om unde s anding he ela ionship be ween epo a e changes
and in la ion expec a ions. An icipa ing he impac o mone a y policy on in la ion
expec a ions can assis in es o s in making in o med decisions abou asse alloca ion
and isk managemen . Simila ly, businesses can adjus hei s a egies, p icing deci-
sions, and in es men plans based on expec ed in la ion, enhancing hei abili y o
na iga e economic condi ions.
The es o he pape highligh s he ollowing. Fi s , sec ion 2 ou lines he li e a u e,
including a discussion o he heo e ical and empi ical li e a u e e iews. Second, sec ion
3 discusses he me hodology. Thi d, sec ion 4 discusses desc ip i e s a is ics and empi i-
cal esul s. Finally, sec ion 5 ou lines he conclusion o he pape .
2. Li e a u e e iew
2.1. Theo ies
Ra ional expec a ions heo y sugges s ha indi iduals o m hei in la ion expec a ions
based on all a ailable in o ma ion, including pas in la ion a es, cu en economic
condi ions, and expec ed u u e policy changes. Ra ional expec a ions heo y implies
ha i he cen al bank aises he policy a e o comba in la ion, indi iduals will adjus
hei expec a ions acco dingly (Angele os e al., 2021; Sa gen , 2013). The a ional
expec a ions a e ep esen ed in Equa ion (1).
JOURNAL OF APPLIED ECONOMICS 5
πe
þ1¼Eðπ jI Þ(1)
Eðπ jI Þ ep esen s he expec a ion o in la ion π a ime based on he in o ma ion se I ;
and πe
þ1 ep esen s he expec ed in la ion alue a ime þ1. Acco ding o a ional
expec a ions heo y, economic agen s o m hei expec a ions πe
þ1 by using all he
a ailable in o ma ion in I . This in o ma ion may include his o ical da a, economic
models, policy announcemen s, and o he ele an in o ma ion (Angele os e al., 2021;
Sa gen , 2013). Equa ion (1) implies ha economic agen s’ expec a ions o in la ion a e
unbiased and e icien , gi en he in o ma ion hey ha e. Any de ia ions be ween ac ual
and expec ed in la ion would be due o un o eseen shocks o changes in he economic
en i onmen (Angele os e al., 2021; Sa gen , 2013). In he con ex o his pape , his
heo y sugges s ha economic agen s, such as inancial analys s, business ep esen a i es,
and ade union ep esen a i es, o m hei in la ion expec a ions based on
a comp ehensi e se o in o ma ion, including pas in la ion a es, cu en economic
condi ions, and expec ed policy changes.
The mone a y policy ansmission mechanism indica es ha aising he policy a e
esul s in highe in e es a es. Financial analys s unde s and ha his can a ec in es -
men s and bo owing expenses o businesses. This could lead o educed economic
ac i i y and lowe in la ion due o weakened demand. In luenced by bo owing expenses,
businesses migh adjus expec a ions o cos s and demand. T ade unions may also ac o
in highe in e es a es’ e ec on consume spending and economic condi ions, impac -
ing hei in la ion ou look (Ya o aya e al., 2022). Conside ing he pe spec i es o a ious
economic agen s, such as inancial analys s, business ep esen a i es, and ade union
membe s, a ional expec a ions o m expec a ions based on all a ailable in o ma ion
(Angele os e al., 2021; Sa gen , 2013). When analysing causal ela ionships and implica-
ions o mone a y policy shocks, he a ional expec a ions heo y aligns o conduc
a igo ous analysis o he causal ela ionship be ween he epo a e, in la ion expec a-
ions, and he implica ions o mone a y policy shocks. This is key in he con ex o his
pape .
2.2. Empi ical s udies
This li e a u e e iew del es in o ex ensi e esea ch examining he in ica e ela ionship
be ween policy a es and in la ion expec a ions. We ha e o ganised ou explo a ion in o
se e al dis inc hemes, each shedding ligh on di e en ace s o his c ucial economic
in e play. The ollowing hemes a e discussed in his e iew: (1) he capaci y o policy
a es o success ully ancho in la ion expec a ions, (2) he nega i e ela ionship o policy
a es on in la ion expec a ions, (3) he shock o policy a es on in la ion expec a ions, and
(4) policy a es and in la ion expec a ions ac oss sec o s. Pe inen in es iga ions in o he
empi ical unde pinnings subs an ia ing he capaci y o policy a es o ancho in la ion
expec a ions success ully encompass con ibu ions om a spec um o esea che s,
including Gobbi e al. (2019), Coibion e al. (2020), Ma in (2020), Younas and
Siddiqui (2021) and Cho and Oh (2023), among o he s. Gobbi e al. (2019) examine
how mone a y policy a ec s in la ion expec a ions using he New Keynesian DSGE
model. They ound apid declines in in la ion expec a ions, ou pacing he policy a e
du ing ad e se shocks and eaching he ze o lowe bound wi hou co ec i e measu es.
6T. MLANGENI AND E. M. BUTHELEZI
Coibion e al. (2020) used New Zealand be ween 2013 and 2017 o hei s udy, consis ing
o o e 3000 households and i ms. They no e ha he in la ion expec a ions o house-
holds and i ms a ec hei ac ions, bu he unde lying mechanisms emain unclea ,
especially o i ms. The compa a i e analysis o Ma in (2020) was used o in es iga e
in la ion expec a ions in Se bia. In la ion expec a ions ac oss all sec o s aligned wi h he
in la ion a ge se a 3%. Howe e , households’ in la ion expec a ions a e abo e he
uppe limi o he in la ion a ge . The in e ac ion be ween in la ion, in e es a es, and
he s ock ma ke was explo ed by Younas and Siddiqui (2021) in Ghana using he VECM
model on da a om 2010 o 2016. Thei s udy emphasised he in luence o policy a es in
shaping in la ion expec a ions, he eby impac ing economic dynamics. Cho and Oh
(2023) examine he p edic i e abili ies o a ious in la ion expec a ions in Ko ea using
a su ey o 2 200 households and a simple model using he policy in e es a e and an
in la ion expec a ion indica o . The eg ession esul sugges s ha mone a y policy is
e ec i e in con olling in la ion.
Empi ical s udies elucida ing he ad e se impac o he policy a e on in la ion
expec a ions a e ound in he wo ks o Shannon and Lau ence (2018), Olsson (2020),
Aßho e al. (2021), Bo one e al. (2022), Mcneil (2023), Bha acha ya (2023) and A ce‐
Al a o and Blago (2023). Shannon and Lau ence (2018) examine he alignmen o
mone a y policy ules wi h in la ion expec a ions in he con ex o Sou h A ica. They
ound ha he mo e agg essi e mone a y policy is ine ec i e bo h a lowe bounds and
abo e i when he shock is signi ican and when he eac i i y o in la ion expec a ions is
su icien ly high. A comp ehensi e in es iga ion by Olsson (2020) was conduc ed in o
he impac o mone a y policy announcemen s on in la ion expec a ions om 2003 o
2015. Using he wo-s age leas squa es eg ession model, he s udy unea hed
a signi ican posi i e e ec o announcing a policy a e inc ease on in la ion expec a ions.
The uncon en ional mone a y policy and in la ion expec a ions in he Eu o a ea we e
in es iga ed by Aßho e al. (2021) using he VAR model om 2009 o 2018. They e lec
e idence ha con en ional mone a y policy ools a e ine ec i e, and in la ion expec a-
ions become a c ucial channel o mone a y policy ansmission. Bo one e al. (2022)
used a su ey o I alian i ms om 2017 qua e 2 o 2020 qua e 1. A VAR model ound
ha he policy esul ed in a 0.247% inc ease in in la ion expec a ions.
Mcneil (2023) in es iga ed how in la ion expec a ions in he Uni ed S a es esponded
o mone a y policy shocks om 1982 o 2019. They es ima ed a s uc u e mode no e ha
a con ac iona y mone a y policy shock wis s he e m s uc u e o in la ion expec a-
ions, aising sho - un expec a ions while lowe ing long- un expec a ions. Using he
VAR mode, Bha acha ya (2023) in es iga ed whe he mone a y policy in India ancho ed
in la ion expec a ions om 2008 qua e 4 o 2014 qua e 4. I was ound ha in la ion
expec a ion was ound o be unancho ed by mone a y policy. A ce‐Al a o and Blago
(2023) used da a om 1982 o 2019 in a VAR model. I was ound ha mone a y policy
unce ain y educes bo h in la ion expec a ions and in la ion. Howe e , a e he G ea
Recession, his link disappea ed.
The sho - and long- un dynamics o he policy a e on in la ion expec a ions we e
unde aken by F acasso and P obo (2017), Diegel and Nau z (2021), Lukianenko e al.
(2022) and A man ie e al. (2022), among o he s. F acasso and P obo (2017) examined
Eu o a ea in la ion expec a ions om July 2008 o Sep embe 2015. Despi e mul iple
s uc u al changes du ing he global inancial c isis, long- e m in la ion expec a ions
JOURNAL OF APPLIED ECONOMICS 7
expec a ions. As he epo a e ises, businesses end o an icipa e highe in la ion le els.
Fu he mo e, he co ela ion coe icien be ween ln and ln n l e dun is calcula ed o be
0.578. This implies a s onge posi i e co ela ion be ween he epo a e and ade unce -
ain y. In his con ex , ade unce ain y e e s o he le el o unce ain y o ola ili y
expe ienced in ade- ela ed ac i i ies. The posi i e co ela ion sugges s ha an inc ease
in he epo a e is associa ed wi h highe ade unce ain y. O e all, hese co ela ion
indings indica e ha changes in he epo a e can impac in la ion expec a ions in bo h
he inancial and business sec o s. A highe epo a e is associa ed wi h inc eased expec a-
ions o u u e in la ion among inancial ma ke pa icipan s and businesses.
Table 4 shows he con en ional uni oo and s uc u al b eak. The Dickey-Fulle and
Phillips-Pe on es s o uni oo s. All economic a iables conside ed in his pape a e
s a iona i y esol ed wi h d1ð Þ. Table 4 displays he da es o da a b eaks conside ed in his
analysis. To add ess his issue, we applied he uni oo es p oposed by Pe on (1989) o
accoun o s uc u al b eaks. The esul s indica e ha all he economic a iables consid-
e ed in his pape exhibi s a iona i y wi h d1ð Þ a e add essing he s uc u al b eaks.
Con e sely, he di e gence in app oach be ween he Dickey-Fulle and Phillips-Pe on
es s, coupled wi h in eg a ing a dummy a iable o ep esen he e lec i e s uc u al b eak,
has acili a ed he esolu ion o he s uc u al dis up ion issue. This is isually illus a ed in
Figu e A1 whe e a speci ic pe iod is iden i iable wi hin he da a has signi ican b eak.
Con e sely, he di e gence in app oach be ween he Dickey-Fulle and Phillips-Pe on
es s, coupled wi h in eg a ing a dummy a iable o ep esen he e lec i e s uc u al
b eak, has acili a ed he esolu ion o he s uc u al dis up ion issue. This is isually
illus a ed in Figu e A2, whe e a speci ic pe iod is iden i iable wi hin he da a whe e no
signi ican b eak is obse ed.
Table 5 shows he lag-o de selec ion c i e ia. In selec ing he lag o de o each
a iable, he pape u ilises h ee commonly used in o ma ion c i e ia: he Akaike in o -
ma ion c i e ion (AIC), he Hannan-Quinn in o ma ion c i e ion (HQIC), and he
Schwa z-Bayesian in o ma ion c i e ion (SBIC). Fo he es ima ion equa ion o
ln in l e , based on hese c i e ia, he lag o de o 3 is selec ed because i yields he
lowes alues o AIC, HQIC, and SBIC, indica ing a be e ade-o be ween model i
and complexi y. Wi h he es ima ion Equa ion o ln in l e b, he lag o de o 4 is chosen
Table 4. Con en ional uni oo and s uc u al b eak.
Tes
Dickey-Fulle es o
uni oo
Phillips-Pe on es o
uni oo S uc u al b eak Pe on es
Va iable
Tes
S a
5% C i ical
Value
Tes
S a
5% C i ical
Value B eak P alue
Tes
S a
5% C i ical
Value
d:ln in l e Z( ) −4.453 −2.900 −4.453 −2.900 2019q3 0.00 −10.937 −2.900
d:ln in l e b Z( ) −4.969 −2.900 −4.969 −2.900 2018q2 0.00 −7.892 −2.900
d:ln n l e dun Z( ) −5.484 −2.900 −5.484 −2.900 2018q4 0.00 −8.483 −2.900
d.ln Z( ) −4.567 −2.900 −4.567 −2.900 2009q4 0.00 −4.609 −2.900
d:lln i Z( ) −7.372 −2.900 −7.372 −2.900 2008q2 0.00 −9.118 −2.900
d:ln gdp gap Z( ) −6.344 −2.900 −6.344 −2.900 2008q4 0.00 −25.463 −2.900
d:ln unempl Z( ) −8.984 −2.900 −8.984 −2.900 2019q2 0.00 −13.285 −2.900
d:ln in l Z( ) −5.899 −2.900 −5.899 −2.900 2004q2 0.00 −6.308 −2.900
d:ln gZ( ) −9.087 −2.900 −9.087 −2.900 2010q1 0.00 −13.625 −2.900
No e ha d is he di e ence in he i s -o de condi ion. The au ho s compiled he esul s.
14 T. MLANGENI AND E. M. BUTHELEZI
because i co esponds o he lowes alues o AIC, HQIC, and SBIC, sugges ing an
op imal balance be ween model i and complexi y. Finally, he ln n l e dunes ima ion
o he lag o de ou is selec ed based on he lowes AIC, HQIC, and SBIC alues,
indica ing he mos sui able ade-o be ween model i and complexi y. Figu e A3
e lec s he s abili y o he ECV model es ima ion. Table 6 p esen s he esul s o he
Johansen es s o coin eg a ion o each a iable: These es s de e mine he p esence o
long- e m ela ionships among he a iables. Fo he es ima ion o ln in l e , ln in l e b,
and ln n l e dun, i is ound ha he maximum ank s a is ic dec eases as he ank
inc eases, sugges ing e idence o coin eg a ion a he c i ical alue a he 5% p- alue.
Ac oss all es ima ions, he e is a maximum ank o 3, 4 and 3, espec i ely, indica ing he
p esence o a leas 3, 4 and 3 coin eg a ing ec o s. These esul s sugges he exis ence o
long- e m ela ionships among he a iables, indica ing ha hey mo e oge he o e
ime. These esul s p o ide e idence o he alidi y o es ima ing he VECM.
Table 5. Lag-o de selec ion c i e ia.
lag LL LR d p FPE AIC HQIC SBIC
ln in l e
0 202.514 0.000 −4.5 −4.466 −4.347
1 864.345 1323.700 49 0.000 0.000 −18.799 −18.156 −17.201
2 1083.580 438.470 49 0.000 0.000 −22.758 −21.552 −19.761
3 1235.160 303.17* 49 0.000 3.1e-20* −25.1433* −23.3746* −20.7483*
ln in l e b
0 197.313 0.000 −4.5 −4.450 −4.329
1 855.255 1315.900 49 0.000 0.000 −19.030 −18.378 −17.409
2 1067.810 425.110 49 0.000 0.000 −22.924 −21.703 −19.886
3 1226.840 318.060 49 0.000 0.000 −25.544 −23.752 −21.0873*
4 1330.320 206.960 49 0.000 6.4e-21* −26.841 −24.4795* −20.967
ln n l e dun
0 188.432 0.000 −4.3 −4.290 −4.168
1 832.202 1287.500 49 0.000 0.000 −18.704 −18.048 −17.072
2 1037.770 411.130 49 0.000 0.000 −22.476 −21.247 −19.416
3 1196.370 317.210 49 0.000 0.000 −25.117 −23.314 −20.6294*
4 1294.760 196.780 49 0.000 1.1e-20* −26.308 −23.9308* −20.392
Compiled by he au ho s.
Table 6. Johansen es s o coin eg a ion.
Maximum ank Pa ams LL Eigen alue T ace s a is ic C i ical alue 5%
ln in l e
0 105 1140.7723 0.0000 188.7824 124.24
1 118 1171.0061 0.50496 128.3148 94.15
2 129 1199.7746 0.48780 70.7779 68.52
3 138 1213.1351 0.26707 44.0569* 47.21
ln in l e b
0 105 1150.7296 0.0000 208.2535 124.24
1 118 1192.4228 0.62077 124.8670 94.15
2 129 1214.9091 0.40722 79.8946 68.52
3 138 1229.7856 0.29246 50.1414 47.21
4 145 1241.4968 0.23841 26.7192* 29.68
ln n l e dun
0 105 1127.9321 0.0000 213.9315 124.24
1 118 1173.1126 0.65031 123.5704 94.15
2 129 1196.2224 0.41576 77.3507 68.52
3 138 1211.3003 0.29577 47.1951* 47.21
Compiled by he au ho s.
JOURNAL OF APPLIED ECONOMICS 15
Table 7 shows he long- un es ima ions o VEC. In es ima ion 1, he ln in l e
in la ion expec a ion in he inancial sec o is e lec ed. The ln na u al loga i hm o
he epo a e is −5.00709 and s a is ically signi ican a he 1% p- alue.
The esul p o ides e idence ha in he long un, a 1% inc ease in he epo a e
dec eases he ln in l e in la ion expec a ion in he inancial sec o , which is app oxi-
ma ely −5.00709%, all else being equal. These esul s a e simila o hose o Kabundi and
Schaling (2013), Gab iel Caldas and Rodol o Tomás Da Fonseca (2015), Kabundi e al.
(2015) and Maule and Hube (2016), among o he s, who ound ha mone a y policy
success ully ancho s in la ion expec a ions. In es ima ion 2, he ln in l e bin la ion
expec a ion in he business sec o is ound o ha e a coe icien o 3.217125, which is
s a is ically insigni ican a he 1% p- alue. The SARB is indeed he mac op uden ial
measu e o inancial s abili y isks. Cen al banks migh use mac op uden ial measu es
( egula ions and policies o educe sys emic isks) alongside mone a y policy.
In es ima ion 3, he ln in l e dun in la ion expec a ion o ade unions is ound o
ha e a coe icien alue o 0.05391, which is s a is ically signi ican a he 1% p- alue. The
esul shows ha a 1% inc ease in he ln na u al loga i hm o he epo a e leads o an
inc ease o 0.05391% in he ln in l e dun in la ion expec a ion o ade unions, all else
being equal. Lowe in la ion expec a ions in he business sec o , d i en by an inc ease in
he epo a e, may in luence wage-se ing beha iou . Businesses may be mo e inclined o
o e lowe wage inc eases i hey an icipa e lowe in la ion in he u u e, which can a ec
wo ke s’ pu chasing powe and labou ma ke dynamics. These esul s a e simila o
hose o Kabundi e al. (2015), who ound ha epo a e inc eases esul in a 0.35%
in la ion expec a ion o ade unions.
Table 7. Long- un es ima ions o VEC.
Es ima ion (1) Es ima ion (2) Es ima ion (3)
Va iable ln in l e Va iable ln in l e b Va iable ln in l e dun
ln −5.00709** ln 3.217125 ln 0.05391***
(−8.38) (0.309466) (5.556029)
lln i 2.610707* l ln i −1.07985** l ln i −2.49872
(7.78) (4.17848) (0.330152)
ln gdp gap 0.752205** ln gdp gap 1.604874 ln gdp gap −2.0386
(1.28) (0.383199) (0.705103)
ln unempl −1.60786** ln unempl −1.49038* ln unempl 7.034806***
(−1.55) (8.70831) (2.265198)
ln in l 4.024137*** ln in l −2.08427 ln in l −2.36513
(13.19) (0.165142) (0.285433)
ln g−2.6345 ln g −4.12963*** ln g −9.72697*
(−1.27) (6.263472) (2.353076)
dmmy ln in l e b −0.68864* dmmy ln in l e dun 0.56658 dmmy ln in l e b 0.679938
(−3.1) (0.16943) (0.304165)
dmmy ln gdp gap −3.90001** dmmy ln gdp gap 2.770337 dmmy ln gdp gap −4.50543
(−6.33) (0.309134) (0.552148)
dmmy ln in l 2.199556* dmmy ln in l −1.30161** dmmy ln in l −1.45619
(5.89) (5.22913) (0.421555)
dmmy ln g 2.098428** dmmy ln g 0.292862 dmmy ln g 4.91827
(4.23) (0.218817) (0.408688)
cons 9.343239* cons 12.99339* cons 12.56705**
(4.23) (4.23) (4.23)
N86 N86 N86
s a is ics in pa en heses and * p < 0.05, ** p < 0.01, *** p < 0.001. Please no e ha only signi ican esul s o he ele an
a iables a e epo ed and compiled by he au ho s due o space cons ain s.
16 T. MLANGENI AND E. M. BUTHELEZI
Table 8 shows he Wald es s o G ange causali y o ln in l e . The a iable ln has
a chi-squa e s a is ic o 3.124 wi h 1 deg ee o eedom d and a p obabili y P ob >Chi2 o
0.077. The p obabili y o 0.077 sugges s ha he a iable ln does no ha e a s a is ically
signi ican G ange causal ela ionship wi h ln in l e a he con en ional signi icance
5% p- alue. This implies ha in e es a es may no signi ican ly d i e in la ion expec a-
ions in he analysed model o pe iod. On he o he hand, ln in l e is ound o ha e
a chi-squa e s a is ic o 7.449 wi h 1 deg ee o eedom d and a p obabili y P ob >Chi2 o
0.006. The likelihood o 0.006 indica es a s a is ically subs an ial G ange causal associa-
ion linking ln and ln in l e a he con en ional signi icance le el o a 5% p- alue.
Table 9 shows he Wald es s o G ange causali y o ln in l e b and
ln in l e dun. The ln has a chi-squa e s a is ic o 6.245 wi h 1 deg ee o eedom
d and a p obabili y P ob >Chi2 o 0.012. The p obabili y o 0.012 sugges s
a s a is ically signi ican G ange causal ela ionship be ween ln and ln in l e b a
he con en ional signi icance le el. The e o e, he es indica es ha ln has
a s a is ically signi ican impac on ln in l e b, implying ha changes in ln can
G ange -cause changes in ln in l e b. The chi-squa e s a is ic o he ela ionship
be ween ln and ln in l e b is 0.041 wi h 1 deg ee o eedom d , and he p obabili y
Table 8. Wald es s o G ange causali y o ln in l e .
Equa ion Excluded chi2 d P ob>Chi2
ln in l e ln 3.124 1 0.077
ln in l e l ln i 0.028 1 0.867
ln in l e ln gdp gap 6.592 1 0.010
ln in l e ln unempl 0.120 1 0.729
ln in l e ln in l 1.257 1 0.262
ln in l e ln g 5.321 1 0.021
ln in l e ALL 26.698 6 0.000
ln ln in l e 7.449 1 0.006
ln l ln i 2.142 1 0.143
ln ln gdp gap 1.481 1 0.224
ln ln unempl 0.110 1 0.740
ln ln in l 2.182 1 0.140
ln ln g 18.176 1 0.000
ln ALL 37.988 6 0.000
Compiled by he au ho s.
Table 9. Wald es s o G ange causali y o ln in l e b and ln in l e dun.
Equa ion Excluded chi2 d P ob>Chi2 Equa ion Excluded chi2 d P ob>Chi2
ln in l e b ln 6.245 1 0.012 ln in l e dun ln 3.676 1 0.055
ln in l e b l ln i 0.729 1 0.393 ln in l e dun l ln i 6.017 1 0.014
ln in l e b ln gdp gap 1.418 1 0.234 ln in l e dun ln gdp gap 3.580 1 0.058
ln in l e b ln unempl 0.000 1 0.993 ln in l e dun ln unempl 1.415 1 0.234
ln in l e b ln in l 50.060 1 0.000 ln in l e dun ln in l 3.830 1 0.050
ln in l e b ln g 18.952 1 0.000 ln in l e dun ln g 3.295 1 0.069
ln in l e b ALL 128.500 6 0.000 ln in l e dun ALL 44.317 6 0.000
ln ln in l e b 0.041 1 0.840 ln ln in l e dun 0.561 1 0.454
ln l ln i 0.224 1 0.636 ln l ln i 0.038 1 0.846
ln ln gdp gap 1.291 1 0.256 ln ln gdp gap 0.310 1 0.578
ln ln unempl 1.553 1 0.213 ln ln unempl 0.155 1 0.693
ln ln in l 2.201 1 0.138 ln ln in l 1.859 1 0.173
ln ln g 24.627 1 0.000 ln ln g 8.305 1 0.004
ln ALL 56.241 6 0.000 ln ALL 18.349 6 0.005
Compiled by he au ho s.
JOURNAL OF APPLIED ECONOMICS 17
P ob >Chi2 is 0.840. I is ound ha he e is a 0.840 p obabili y; as such, he e is no
s a is ically signi ican G ange causal ela ionship be ween ln and ln in l e b a he
con en ional signi icance le el. This sugges s ha changes in ln do no signi ican ly
impac ln in l e b.
Gi en his esul , policy conside a ions need o be examined; hence, gi en he sig-
ni ican G ange causal ela ionship be ween ln and ln in l e b, policymake s should
ca e ully moni o and conside he po en ial impac o changes in in e es a es on
in la ion expec a ions wi hin he banking sec o . They should conside he dynamics o
in la ion expec a ions in hei mone a y policy decisions o ensu e p ice s abili y and
suppo he o e all economic objec i es.
The a iable ln has a chi-squa e s a is ic o 3.676 wi h 1 deg ee o eedom d , and
he p obabili y P ob >Chi2 is 0.055. The p obabili y o 0.055 indica es a mode a ely
signi ican esul , sugges ing a possible G ange causal ela ionship be ween ln and
ln in l e dun. Howe e , i is essen ial o no e ha he signi icance le el is no below he
con en ional h eshold o 0.05, so he pape canno conclude wi h ce ain y ha he e is
a s a is ically signi ican G ange causal ela ionship be ween ln and ln in l e dun.
The chi-squa e s a is ic o he ela ionship be ween ln and ln in l e dunis 0.561 wi h
1 deg ee o eedom d , and he p obabili y P ob >Chi2is 0.454.
Figu e 2. Shock o in la ion expec a ions o inancial agen s o one yea ahead on economic
a iables. No e ha economic a iables a eln in l e which is he in la ion expec a ions o inancial
agen s o one yea ahead, ln is he epo a e, l ln i is he lag eal in e es a e, ln gdp gap g oss
domes ic p oduc gap, pe cen change, qua e ly, seasonally adjus ed annual a e, ln unempl is he
o icial unemploymen a e, ln in l is he in la ion a e and is he ln g gene al go e nmen inal
consump ion expendi u e pe cen age o g oss domes ic p oduc . Compiled by he au ho s.
18 T. MLANGENI AND E. M. BUTHELEZI
Wi h a p obabili y o 0.454, he e is no s a is ically signi ican G ange causal ela ion-
ship be ween ln and ln in l e duna he con en ional signi icance le el. This sugges s
ha changes in ln do no signi ican ly impac ln in l e dun. Gi en ha sec o -
speci ic analysis may be needed since he analysis does no ind a signi ican ela ionship
be ween ln and ln in l e dun, i may be wo hwhile o conduc u he sec o -speci ic
analysis o iden i y he d i e s o in la ion expec a ions in he ade and indus y sec o s.
This could in ol e explo ing addi ional a iables o ac o s in luencing in la ion expec a-
ions wi hin ha sec o .
Figu e 2 shows he shock o in la ion expec a ions o inancial agen s one yea ahead
on economic a iables. In Figu e 2, diag am (a), i is ound ha lln i esul s in a sha p
inc ease in ln in l e om he i s qua e , and a e ha , i d as ically alls un il qua e
3, whe e i e u ns o equilib ium and a e he ope a o below equilib ium. Policymake s
should communica e clea ly and anspa en ly abou hei mone a y policy decisions and
objec i es. This helps ancho in la ion expec a ions and ensu e ma ke pa icipan s
unde s and he policy s ance clea ly. The i s pa o he shock is simila o ha o
Aßho e al. (2021), who no e ha he e is a sha p inc ease in in la ion expec a ions when
he e is an uncon en ional mone a y policy shock on in la ion expec a ions in he sho
e m. Gobbi e al. (2019) ad oca ed a mone a y policy ha ancho ed in la ion expec a-
ions as e han he policy a e.
Figu e 3. Shock o in la ion expec a ions o business agen s one yea ahead on economic a iables.
No e ha economic a iables a e ln in l e b, which is he in la ion expec a ions o business agen s
one yea ahead, ln is he epo a e, l ln i is he lag eal in e es a e, ln gdp gap g oss domes ic
p oduc gap, pe cen change, qua e ly, seasonally adjus ed annual a e, ln unempl is he o icial
unemploymen a e, ln in l is he in la ion a e. I is he ln g gene al go e nmen inal consump ion
expendi u e pe cen age o g oss domes ic p oduc . Compiled by he au ho s.
JOURNAL OF APPLIED ECONOMICS 19
Figu e 3 shows he shock o in la ion expec a ions o business agen s one yea ahead on
economic a iables. In Figu e 3, diag am (a), i is ound ha lln i inc eases ln in l e ,
which inc eases a a dec easing a e. This e lec s ha i has a diminishing ma ginal e u ns
e ec on ln in l e . Gi en he diminishing ma ginal e u ns e ec , he SARB may need o
conside mac op uden ial measu es as addi ional ools o manage in la ion expec a ions and
inancial s abili y. These measu es could include egula o y policies ela ed o c edi g ow h,
asse p ices, o o he sys emic isks ha could impac in la ion dynamics and expec a ions.
The esul s a e simila o hose o Diegel and Nau z (2021), who ound ha expansiona y
mone a y policy shocks ha e inc eased and e-ancho ed in la ion expec a ions.
Figu e 4 shows he shock o in la ion expec a ions o ade union agen s one yea
ahead on economic a iables. In Figu e 4, diag am (a), i is ound ha lln i esul s in
an inc ease in ln in l e dunln , which is sligh ly ola ile bu e lec s a diminishing
ma ginal e u ns e ec on ln in l e dunln . The ola ili y e lec s he ins abili y in he
Sou h A ican labou ma ke , which is cha ac e ised by high unemploymen . On he
o he hand, apid changes and shi s in he labou ma ke can lead o skill misma ches,
whe e he skills possessed by wo ke s may need o align wi h he e ol ing demands o he
job ma ke . These changes will esul in economic agen s ha ing di e en in la ion
expec a ions when he e is a change in mone a y policy.
Figu e 4. Shock o in la ion expec a ions o ade union agen s o one yea ahead on economic a iables.
No e ha economic a iables a eln in l e dunln , which is he in la ion expec a ions o ade union
agen s o one yea ahead, ln is he epo a e, l ln i is he lag eal in e es a e, ln gdp gap g oss
domes ic p oduc gap, pe cen change, qua e ly, seasonally adjus ed annual a e, ln unempl is he o icial
unemploymen a e, ln in l is he in la ion a e and is he ln g gene al go e nmen inal consump ion
expendi u e pe cen age o g oss domes ic p oduc . Compiled by he au ho s.
20 T. MLANGENI AND E. M. BUTHELEZI
Ne e heless, hese esul s a e empi ically simila o hose o Falck e al. (2021), who
no e ha a con ac iona y mone a y policy shock o 100 base poin s inc eases in la ion
and in la ion expec a ions o up o 0.7 pe cen age poin s in imes o high disag eemen .
In diag am (c), an inc ease in he epo a e means i becomes mo e expensi e o
indi iduals and businesses o bo ow money. This can lead o educed consume spend-
ing, lowe business in es men s, and dec eased economic g ow h.
5. Conclusion
This pape del es in o he in ica e ela ionship be ween shi s in mone a y policy and
in la ion expec a ions, explo ing how his dynamic a ies ac oss di e en sec o s. By
employing a ec o e o co ec ion (VEC) model and analysing a da a se encompassing
he pe iods om he i s qua e o 2000 o he ou h qua e o 2022, he s udy
in es iga es how mone a y policy changes e e be a e wi hin he inancial, business,
and ade union sec o s. In he longe e m, mone a y policy in luences in la ion expec-
a ions wi hin he inancial sec o , and heigh ened epo a es in he business sphe e
co ela e wi h diminished expec a ions, impac ing he in ica e landscape o wage nego-
ia ions. G ange causali y es s u he subs an ia e he links be ween epo a e shi s and
co esponding in la ion expec a ions shi s o he business and ade union sec o s. By
unpacking hese sec o -speci ic eac ions o he impac o mone a y policy on in la ion
expec a ions, his s udy expands ou comp ehension o he mul i ace ed na u e o how
di e en segmen s o he economy espond o hese dynamics.
The pape e lec ed c i ical connec ions and p ac ical implica ions, e ealing
signi ican sho - un ela ionships be ween he epo a e and in la ion expec a-
ions o a ious economic agen s. The nega i e coe icien s obse ed in he
inancial and business sec o s sugges ha inc eases in he epo a e lead o
dec eased in la ion expec a ions. This aligns wi h he con en ional iew ha
highe epo a es a e associa ed wi h igh e mone a y condi ions, in luencing
bo owing cos s and o e all economic ou look. The posi i e coe icien obse ed
in ade unions’ expec a ions is in iguing, implying ha highe epo a es a e
linked o highe in la ion expec a ions. This po en ially e lec s adap i e beha iou
whe e his o ical ela ionships be ween epo a e changes and in la ion a e con-
side ed. These indings unde sco e he impo ance o clea and anspa en com-
munica ion by policymake s. Ancho ing in la ion expec a ions is c ucial o
ensu ing s able economic condi ions. The s udy sugges s ha ma ke pa icipan s
a e esponsi e o policy a e changes, and cen al banks mus communica e hei
in en ions e ec i ely o minimise unce ain y and shape expec a ions in desi ed
di ec ions.
I is essen ial o acknowledge he limi a ions o he s udy. The analysis elies on
s a is ical ela ionships and associa ions, which migh only cap u e some o he complex-
i ies o eal-wo ld economic dynamics. The s udy assumes speci ic beha iou al pa e ns,
such as a ional and adap i e expec a ions, ha migh no ully explain agen s’ decisions.
Addi ionally, he esea ch migh only cap u e some ele an a iables ha impac in la-
ion expec a ions, lea ing oom o omi ed a iable bias. In he con ex o he Sou h
A ican economy, whe e in la ion managemen is a p io i y, he s udy o e s insigh s o
policymake s. The indings sugges ha epo a e changes can in luence in la ion
JOURNAL OF APPLIED ECONOMICS 21
expec a ions, a ec ing economic beha iou . Policymake s should conside hese ela-
ionships when making mone a y policy decisions. Gi en he dis inc esponses ac oss
sec o s, he s udy sugges s ha he e migh be be e app oaches han a one-size- i s-all
app oach o mone a y policy. Tailo ing communica ion and policy ac ions o speci ic
sec o s could enhance he e ec i eness o policy ansmission. The obse ed link be ween
in la ion expec a ions and epo a e changes also a ec s he b oade mac oeconomic
en i onmen . Fo ins ance, he impac on wage nego ia ions and he ba gaining powe o
ade unions could a ec he wage-p ice spi al. Policymake s should know hese in e -
connec ions when aming mone a y policy and conduc ing wage nego ia ions. Based on
he indings, policy conside a ions sugges ha policymake s should ake a holis ic
app oach o mone a y policy. This includes adjus ing he epo a e o manage in la ion
and communica ing hese ac ions anspa en ly o shape expec a ions and ma ke beha-
iou . Sec o -speci ic analysis migh p o ide mo e nuanced insigh s in o in la ion
dynamics, allowing o mo e a ge ed policy decisions.
Addi ionally, policymake s should conside complemen ing mone a y policy wi h
mac op uden ial measu es o add ess inancial s abili y isks. Regula o y policies ocused
on c edi g ow h, asse p ices, and sys emic isks could be i al in managing in la ion
expec a ions and ensu ing o e all economic s abili y. I is p oposed ha u u e s udies
may need o conside he ime- a ying e ec s o policy a es on in la ion expec a ions.
Mo eo e , i explo es how ma ke s uc u e and he le el o compe i ion wi hin sec o s
in luence hei esponses o changes in mone a y policy. Sec o s wi h highe le els o
compe i ion migh espond di e en ly compa ed o mo e concen a ed indus ies.
Disclosu e s a emen
No po en ial con lic o in e es was epo ed by he au ho (s).
No es on con ibu o s
Thobani Mlangeni is he honou s s uden a he Uni e si y o F ee S a e. His aspi ing da a analys .
His esea ch in e es is no mone a y policy, in es men managemen and banking.
Eugene Msizi Bu helezi is cu en ly in ad anced s age o comple ing a PhD (submi ed o
examina ion a Uni e si y o KwaZulu-Na al UKZN). Cu en ly, he au ho is an nGAP
Lec u e a he Uni e si y o F ee S a e eaching economics o public manage s a unde g ad
le el. The au ho ’s esea ch in e es is on he mac oeconomics on he aspec o mac o-economic
modelling; iscal policy, mone a y sys ems; in la ion; in e es a es; cen al banks and hei policies.
ORCID
Eugene Msizi Bu helezi h p://o cid.o g/0000-0002-2233-7347
Da a a ailabili y s a emen
Da a will be supplied upon eques .
22 T. MLANGENI AND E. M. BUTHELEZI
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