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

  • International Monetary Fund
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    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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    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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    1. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
    2. David Cook & Woon Gyu Choi, 2008. "New Keynesian Exchange Rate Pass-Through," IMF Working Papers 08/213, International Monetary Fund.
    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. 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.
    5. Peter Pedroni, 2004. "Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis," Department of Economics Working Papers 2004-15, Department of Economics, Williams College.
    6. Yelena Takhtamanova, 2008. "Understanding changes in exchange rate pass-through," Working Paper Series 2008-13, Federal Reserve Bank of San Francisco.
    7. Nkunde Mwase, 2006. "An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania," IMF Working Papers 06/150, International Monetary Fund.
    8. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
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