An employment targeting framework for central bank policy in South Africa

This paper presents an employment targeting (ET) framework as an alternative to an inflation targeting monetary policy framework for South Africa. The framework incorporates some of the advantages normally claimed for a targeting framework-namely, enhancing transparency and accountability-while focusing the goals of monetary policy more directly on critical macroeconomic problems facing the South African economy, namely, employment, subject, of course, to an inflation constraint. Re-orienting monetary policy toward generating employment will require that monetary policy re-develop and utilize a multiplicity of monetary policy and credit tools, including tools for credit allocation and capital management. The paper presents a VAR based simulation model for South Africa that shows that more expansionary monetary policy can contribute to faster economic growth without seriously exacerbating inflation or exchange rate instability.