Heterogeneous provincial prices and monetary policy in South Africa: A wavelet-based quantile regression analysis

Özet

Although economic agents in different parts of a country face heterogeneous prices, empirical literaturecontinue to assume homogeneity in the monetary policy-inflation nexus, with dire consequences foroptimal monetary policy and welfare. Using wavelet-based quantile regressions, we provide a multilayeredasymmetric exposition on provincial inflation-monetary policy relationship in South Africa.We find that whiles restrictive monetary policy delivers stability in the prices of Gauteng, Mpumalangaand North West provinces, it is destabilizing for prices in Eastern Cape, KwaZulu-Natal, Limpopo,Northern Cape and Western Cape provinces. The findings are mixed, for Free State province, dependingon the time horizon and quantiles. Our findings present enormous policy and welfare implications, giventhe inflation targeting status of South Africa and the economic disparities among the provinces of thecountry.