Evaluating South Africa's Open Economy

The competing theories of the macroeconomic trilemma and dilemma are empirically tested for South Africa. The empirical findings show evidence of the trilemma theory being applicable to South Africa, supporting the country's ability to maintain monetary independence (MI). An empirical puzzle, however, emerged as South Africa's MI index decreased during the country's 2000–2014 inflation‐targeting period. A possible explanation, and subject for further research, is that the increasing opening of South Africa to international flows since 1995 may have caused South Africa to be more exposed to international business cycles and shocks, resulting in a reduction in measured MI.