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An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania

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  • Nkunde Mwase

Abstract

The paper examines the effect of exchange rate changes on consumer prices in Tanzania using structural vector autoregression (VAR) models. Using a data set covering the period 1990-2005, we find that the exchange rate pass-through to inflation declined in the late 1990s despite the depreciation of the currency. This could be partly attributed to the macroeconomic and structural reforms that were implemented during this period. The decline in the pass-through does not necessarily imply that exchange rate fluctuations are less significant in explaining macroeconomic fluctuations. The recent increase in the share of imports in the economy suggests that the pass-through could rise over the medium term. The findings imply that the authorities should remain vigilant in assessing the potential impact of foreign prices on the dynamics of inflation in Tanzania. In this regard, the authorities should seek to maintain low and stable inflation and continue the ongoing structural reforms designed to improve efficiency and increase competition.

Suggested Citation

  • Nkunde Mwase, 2006. "An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania," IMF Working Papers 06/150, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/150
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. International Monetary Fund, 2007. "Tunisia; Selected Issues," IMF Staff Country Reports 07/319, International Monetary Fund.
    2. Azwifaneli I. Nemushu, 2016. "Rand volatility and inflation in South Africa," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 4(6), pages 8-20, December.
    3. repec:asi:ajoerj:2013:p:363-380 is not listed on IDEAS
    4. Abdullah Almounsor, 2010. "Inflation Dynamics in Yemen; An Empirical Analysis," IMF Working Papers 10/144, International Monetary Fund.
    5. Sylvia Beatriz Guillermo Peón & Martín Alberto Rodríguez Brindis, 2014. "Analyzing the Exchange Rate Pass-through in Mexico: Evidence Post Inflation Targeting Implementation," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 32(74), pages 18-35, Junio.
    6. Kenji Moriyama, 2008. "Investigating Inflation Dynamics in Sudan," IMF Working Papers 08/189, International Monetary Fund.
    7. Jiang, Jiadan & Kim, David, 2013. "Exchange rate pass-through to inflation in China," Economic Modelling, Elsevier, vol. 33(C), pages 900-912.
    8. Chatri, Abdellatif & Maarouf, Abdelwahab & Ragbi, Aziz, 2016. "Pass-through du taux de change aux prix au Maroc
      [An empirical investigation of the exchange rate pass-through to prices in Morocco]
      ," MPRA Paper 71757, University Library of Munich, Germany.
    9. Naz, Farah & Mohsin, Asma & Zaman, Khalid, 2012. "Exchange rate pass-through in to inflation: New insights in to the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2205-2221.
    10. Grace Ofori-Abebrese & George Kwesi Walanyo Azumah & Robert Becker Pickson, 2017. "Public Sector Wage and Inflation in Ghana," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(6), pages 561-572, June.
    11. Ivohasina F Razafimahefa, 2012. "Exchange Rate Pass-Through in Sub-Saharan African Economies and its Determinants," IMF Working Papers 12/141, International Monetary Fund.
    12. repec:lrc:lareco:v:5:y:2017:i:5:p:1-11 is not listed on IDEAS
    13. International Monetary Fund, 2009. "Uganda and Rwanda; Selected Issues," IMF Staff Country Reports 09/36, International Monetary Fund.
    14. repec:spt:admaec:v:7:y:2017:i:6:f:7_6_4 is not listed on IDEAS
    15. 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.
    16. Kadima D. Kalonji & Jan Gottschalk & Ken Miyajima, 2008. "Analyzing Determinants of Inflation When There Are Data Limitation; The Case of Sierra Leone," IMF Working Papers 08/271, International Monetary Fund.

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