The Relationship Between Economic Growth and Inflation in the South African Economy

Abstract

The debate about the relationship between inflation and economic growth is important for the conduction of monetary policy. Given the relevance of this area of study, an important number of theories and models in the macroeconomic literature analyze the relationship between economic growth and inflation. The relationship of these macroeconomic variables is critical for the proper formulation and implementation of effective monetary policy (Akinboade, 2002). The current study adopted a quantitative study design to be able to determine the relationship between economic growth and inflation and also to explain variations between them. The study relies mainly on the quarterly secondary data. The sample size to be used is 18 years which is from 1993 to 2011 being quarterly data which was based on pre-inflation targeting 1993 to 1999 quarterly data and post-inflation targeting 2000 to 2011 quarterly. The data was obtained from various data sources and institutions, Stats South Africa and also on these websites www.easydata.co.za and www.tradingeconomics.com. The estimated model also used to analyze the study was the linear regression model; hence relevant literature was reviewed concerning the relationship. To analyze the data the study used the EViews 7 statistical programme. The findings indicated that white tests indicating non present of heteroscedasticity in the data. When there is heteroscedasticity it is the absence of homoscedasticity.

DOI: 10.5901/mjss.2014.v5n15p119