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

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  • Ivohasina F Razafimahefa

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.

Suggested Citation

  • Ivohasina F Razafimahefa, 2012. "Exchange Rate Pass-Through in Sub-Saharan African Economies and its Determinants," IMF Working Papers 12/141, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/141
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    1. Nkunde Mwase, 2006. "An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania," IMF Working Papers 06/150, International Monetary Fund.
    2. Jeffrey Frankel & David Parsley & Shang-Jin Wei, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Open Economies Review, Springer, vol. 23(2), pages 213-251, April.
    3. 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.
    4. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
    5. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
    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. David Cook & Woon Gyu Choi, 2008. "New Keynesian Exchange Rate Pass-Through," IMF Working Papers 08/213, International Monetary Fund.
    8. Takhtamanova, Yelena F., 2010. "Understanding changes in exchange rate pass-through," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1118-1130, December.
    9. Fisher, Eric, 1989. "A model of exchange rate pass-through," Journal of International Economics, Elsevier, vol. 26(1-2), pages 119-137, February.
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    Citations

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    Cited by:

    1. Charl Jooste & Yaseen Jhaveri, 2014. "The Determinants of Time-Varying Exchange Rate Pass-Through in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 82(4), pages 603-615, December.
    2. Janine Aron & Ronald Macdonald & John Muellbauer, 2014. "Exchange Rate Pass-Through in Developing and Emerging Markets: A Survey of Conceptual, Methodological and Policy Issues, and Selected Empirical Findings," Journal of Development Studies, Taylor & Francis Journals, vol. 50(1), pages 101-143, January.
    3. repec:eee:riibaf:v:44:y:2018:i:c:p:186-217 is not listed on IDEAS
    4. repec:spt:admaec:v:7:y:2017:i:6:f:7_6_4 is not listed on IDEAS
    5. Eduardo Borensztein & Virginia Queijo Von Heideken, 2016. "Exchange Rate Pass-through in South America: An Overview," IDB Publications (Working Papers) 7779, Inter-American Development Bank.
    6. Eduardo Borensztein & Virginia Queijo Von Heideken, 2016. "Exchange Rate Pass-through in South America: An Overview," IDB Publications (Working Papers) 95196, Inter-American Development Bank.
    7. repec:khe:scajes:v:4:y:2018:i:1:p:60-67 is not listed on IDEAS
    8. repec:ris:betajl:0015 is not listed on IDEAS

    More about this item

    Keywords

    Exchange rate regimes; Exchange rates; Exports; Price elasticity; Prices; Imports; Inflation; Sub-Saharan Africa; exchange rate; impulse responses; exchange rate pass; exchange rate changes;

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