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Exchange Rate Pass-Through in Sub-Saharan African Economies and its Determinants

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  • International Monetary Fund
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    Abstract

    This paper analyzes the exchange rate pass-through to domestic prices and its determinants in sub-Saharan African countries. It finds that the pass-through is incomplete. The pass-through is larger following a depreciation than after an appreciation of the local currency. The average elasticity is estimated at about 0.4. It is lower in countries with more flexible exchange rate regimes and in countries with a higher income. A low inflation environment, a prudent monetary policy, and a sustainable fiscal policy are associated with a lower pass-through. The degree of pass-through has declined in the SSA region since the mid-1990s following marked improvements in macroeconomic and political environments.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/141.

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    Length: 24
    Date of creation: 01 Jun 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/141

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    Related research

    Keywords: Exchange rates; Exchange rate regimes; Price elasticity; Prices; exchange rate; exchange rate pass; inflation; exchange rate changes; flexible exchange rate; flexible exchange rate regimes; fixed exchange rate regimes; fixed exchange rate; monetary policy; low inflation; exchange rate depreciation; inflation rate; exchange arrangements; classification of exchange rate; exchange rate arrangements; exchange restrictions; price level; flexible exchange rates; foreign currency; aggregate demand; exchange rate arrangement; exchange rate instability; nominal exchange rate; average inflation; effective exchange rate; exchange rate dynamics; exchange rate shock; nominal effective exchange rate; price competitiveness; annual inflation; ppp; macroeconomic stability; exchange rate policy; exchange rate change; annual inflation rate; exchange rate regime; exchange rate shocks; exchange rate movements; exchange rate variability; price stability; exchange rate appreciation; floating ? exchange rate; exchange rate flexibility; inflationary spiral; flexible exchange rate regime; currency depreciation;

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    1. David Cook & Woon Gyu Choi, 2008. "New Keynesian Exchange Rate Pass-Through," IMF Working Papers 08/213, International Monetary Fund.
    2. Maurice Obstfeld & Kenneth Rogoff, 1994. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
    3. Fisher, Eric, 1989. "A model of exchange rate pass-through," Journal of International Economics, Elsevier, vol. 26(1-2), pages 119-137, February.
    4. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
    5. Takhtamanova, Yelena F., 2010. "Understanding changes in exchange rate pass-through," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1118-1130, December.
    6. Corrinne Ho & Robert N. McCauley, 2003. "Living with flexible exchange rates: issues and recent experience in inflation targeting emerging market economies," BIS Working Papers 130, Bank for International Settlements.
    7. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
    8. Nkunde Mwase, 2006. "An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania," IMF Working Papers 06/150, International Monetary Fund.
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