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Abstract

The main purpose of this research paper is to determine whether Nominal GDP targeting as a monetarypolicy regime would be superior to Inflation targeting in minimising the South African Reserve Bank'sloss function. This is done by algebraically deriving the necessary conditions for Nominal GDP targetingto dominate Inflation targeting using two different forms of loss functions. The Şrst form includes pricestability and output stability, while the second form includes both price and output stability and addscurrencyfluctuation into the loss function, both using data from 1993Q1 to 2014Q1 and uniquelyincorporating data from the mining sector due to the sector's key role in the South African economy.Based on these results and practical issues of Nominal GDP targeting, such as the possibility of enhancingthe severity of stagflation, this paper does not recommend Nominal GDP targeting as a monetary policyframework for South Africa.© 2017 Central Bank of The Republic of Turkey. Production and hosting by Elsevier B.V. This is an openaccess article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).