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Coping With Inflation And Exchange Rate Shocks In The South African Economy

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  • W. DE WET

Abstract

Over the past ten years South Africa has moved to an increasingly open economy, characterised by a (relatively) low inflation and large and unpredictable movements in the prices of financial assets. One of these asset prices is the value of the South African currency. This volatility in the exchange rate has a direct impact on inflation. Using the interest rate as operational target, a central bank might ignore or underestimate the exchange rate transmission mechanism through which the economy is influenced. This paper proposes a Monetary Conditions Index for South Africa that can be used as a policy rule or simply as an important information variable in conducting monetary policy under an inflation‐targeting regime with a volatile exchange rate.

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  • W. De Wet, 2002. "Coping With Inflation And Exchange Rate Shocks In The South African Economy," South African Journal of Economics, Economic Society of South Africa, vol. 70(1), pages 78-94, March.
    • Handle: RePEc:bla:sajeco:v:70:y:2002:i:1:p:78-94
    DOI: 10.1111/j.1813-6982.2002.tb00039.x
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    Cited by:

    1. Wai-Ching Poon, 2010. "A monetary policy rule: The augmented Monetary Conditions Index for Philippines using UECM and bounds tests," Monash Economics Working Papers 04-10, Monash University, Department of Economics.
    2. Walter A. de Wet, 2003. "Thinking Like A Governor," South African Journal of Economics, Economic Society of South Africa, vol. 71(4), pages 792-805, December.
    3. P. Burger & T. Knedlik, 2004. "The Mci As A Monetary Policy Guide In A Small, Open Emerging Market Economy," South African Journal of Economics, Economic Society of South Africa, vol. 72(2), pages 365-383, June.

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