The High-Frequency Response of the Rand-Dollar rate to Inflation Surprises
AbstractWe examine the high-frequency response of the rand-dollar nominal rate within ten-minute intervals around five minutes before, five minutes after) official inflation announcements, and show that the rand appreciates (respectively, depreciates) on impact when inflation is higher (respectively, lower) than expected. The effect only applies after the adoption of inflation targeting, and is stronger for good news. Our findings are rationalisable by the belief, among market participants, in a credible (though perhaps not particularly aggressive) inflation targeting policy in South Africa; and can be used to monitor changes in currency market perceptions about the monetary policy regime.
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Bibliographic InfoPaper provided by Economic Research Southern Africa in its series Working Papers with number 279.
Length: 16 pages
Date of creation: 2012
Date of revision:
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high-frequency exchange rates; inÂ‡flation surprises; Taylor rules; inÂ‡flation targeting; credibility.;
Other versions of this item:
- Greg Farrell & Shakill Hassan & Nicola Viegi, 2012. "The High-Frequency Response of the Rand-Dollar Rate to Inflation Surprises," Working Papers 201215, University of Pretoria, Department of Economics.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F30 - International Economics - - International Finance - - - General
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-AFR-2012-04-23 (Africa)
- NEP-ALL-2012-04-23 (All new papers)
- NEP-MAC-2012-04-23 (Macroeconomics)
- NEP-MON-2012-04-23 (Monetary Economics)
- NEP-MST-2012-04-23 (Market Microstructure)
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