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An Empirical Investigation of Exchange Rate Pass-Through in South Africa

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  • Ashok Bhundia
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    Abstract

    This paper analyzes the degree to which fluctuations in the nominal exchange rate passthrough to consumer prices in South Africa. While the average pass-through is found to be low, evidence from a structural vector autoregression suggests it is much higher for nominal (versus real) shocks. Historical decompositions suggest that the nominal exchange rate depreciation up to November 2001 is attributable primarily to negative real shocks, which explains why CPIX (consumer price index excluding interest on mortgate bonds) inflation did not increase significantly until December 2001, when positive nominal shocks began to contribute to the depreciation.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/165.

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    Length: 28
    Date of creation: 01 Sep 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/165

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    Related research

    Keywords: Producer prices; exchange rate; inflation; nominal exchange rate; relative prices; real exchange rate; effective exchange rate; price inflation; monetary policy; nominal effective exchange rate; exchange rate pass; exchange rate depreciation; price level; exchange rate fluctuations; real effective exchange rate; exchange rates; nominal exchange rate depreciation; exchange rate shocks; currency depreciation; inflation target; dollar exchange rate; inflationary pressures; effective exchange rates; money growth; aggregate demand; inflationary impact; real interest rates; currency devaluations; exchange rate depreciations; exchange rate shock; real exchange rate depreciation; relative price; exchange rate changes; rates of inflation; general level of prices;

    References

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    1. Prema-chandra Athukorala & Jayant Menon, 1992. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Working Papers 1992.32 EDIRC Provider-In, School of Economics, La Trobe University.
    2. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    3. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
    4. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
    5. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    6. Enrique Alberola & Juan Ayuso & J. David Lopez-Salido, 2000. "When may depreciations fuel inflation? An application to the Spanish case," Applied Economics, Taylor & Francis Journals, vol. 32(8), pages 1037-1049.
    7. Rudiger Dornbusch, 1985. "Exchange Rates and Prices," NBER Working Papers 1769, National Bureau of Economic Research, Inc.
    8. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Wiley Blackwell, vol. 9(2), pages 197-231, June.
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    Cited by:
    1. Jongwanich, Juthathip & Park, Donghyun, 2009. "Inflation in developing Asia," Journal of Asian Economics, Elsevier, vol. 20(5), pages 507-518, September.
    2. Janine Aron & John Muellbauer, 2004. "Construction of CPIX Data for Forecasting and Modelling in South Africa," Development and Comp Systems 0409056, EconWPA.
    3. Zulfiqar Hyder & Sardar Shah, 2005. "Exchange Rate Pass-Through to Domestic Prices in Pakistan," Macroeconomics 0510020, EconWPA.
    4. Sanusi, Aliyu Rafindadi, 2010. "Exchange rate pass-through to consumer prices in Ghana: Evidence from structural vector auto-regression," MPRA Paper 29491, University Library of Munich, Germany.
    5. Matthew Kofi Ocran, 2010. "Exchange Rate Pass-Through To Domestic Prices: The Case of South Africa," Prague Economic Papers, University of Economics, Prague, vol. 2010(4), pages 291-306.
    6. María Lorena Marí Del Cristo & Marta Gómez-Puig, 2013. "Pass-through in dollarized countries: should Ecuador abandon the US dollar?," Applied Economics, Taylor & Francis Journals, vol. 45(31), pages 4395-4411, November.
    7. Marco Rossi & Daniel Leigh, 2002. "Exchange Rate Pass-Through in Turkey," IMF Working Papers 02/204, International Monetary Fund.
    8. Dubravko Mihaljek & Marc Klau, 2008. "Exchange rate pass-through in emerging market economies: what has changed and why?," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 103-130 Bank for International Settlements.
    9. David C. Parsley, 2012. "Exchange Rate Pass-through in South Africa: Panel Evidence from Individual Goods and Services," Journal of Development Studies, Taylor & Francis Journals, vol. 48(7), pages 832-846, January.
    10. Abdul Aleem & Amine Lahiani, 2014. "A Threshold Vector Autoregression Model of Exchange Rate Pass-Through in Mexico," Post-Print halshs-01022416, HAL.
    11. Federico Marongiu, 2004. "Devaluación e Inflacion en Argentina despues de la Convertibilidad," Macroeconomics 0404013, EconWPA.

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