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Exchange Rate Pass-through to Import Prices, and Monetary Policy in South Africa

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  • Janine Aron
  • Greg Farrell
  • John Muellbauer
  • Peter Sinclair

Abstract

Understanding how import prices adjust to exchange rates helps anticipate inflation effects and monetary policy responses. This article examines exchange rate pass-through to the monthly import price index in South Africa during 1980-2009. Short-horizon pass-through estimates are calculated using both single equation equilibrium correction models and systems (Johansen) models, controlling for both domestic and foreign costs. Average pass-through is incomplete at about 50 per cent within a year and 30 per cent in six months, and in the long-run, from the Johansen analysis including feedback effects, is about 55 per cent. There is evidence of slower pass-through under inflation targeting; pass-through is found to decline with recent exchange rate volatility and there is evidence for asymmetry, with greater pass-through occurring for small appreciations.

Suggested Citation

  • Janine Aron & Greg Farrell & John Muellbauer & Peter Sinclair, 2014. "Exchange Rate Pass-through to Import Prices, and Monetary Policy in South Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 50(1), pages 144-164, January.
  • Handle: RePEc:taf:jdevst:v:50:y:2014:i:1:p:144-164
    DOI: 10.1080/00220388.2013.847179
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    References listed on IDEAS

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    3. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
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    5. Kevin Nell, 2004. "The structuralist theory of imported inflation: an application to South Africa," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1431-1444.
    6. repec:hrv:faseco:30703806 is not listed on IDEAS
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