oa Botswana Institute of Administration & Commerce Journal - Monetary policy reaction function through extended Tailor's Rule

Volume 5, Issue 1
  • ISSN : 1729-1070



This paper examined the Bank of Botswana's monetary policy reaction function (MPRF) using the extended Taylor's rule, the VECM and the impulse response functions. We found that the Bank rate responds positively to a shock to the inflation gap and output gap. This confirms that the Bank of Botswana is committed to attaining price stability. This finding suggests that the Bank of Botswana priority is on targeting inflation than output. Also, Bank of Botswana considers the South African interest rate in setting the domestic interest rate.

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