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Inflation, Money Demand, and Purchasing Power Parity in South Africa

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  • Gunnar Jonsson

Abstract

This empirical study for South Africa indicates that there exists a stable money demand type of relationship among domestic prices, broad money, real income, and interest rates, as well as a long-run relationship among domestic prices, foreign prices, and the nominal exchange rate. In the short run, shocks to the nominal exchange rate affect domestic prices but have virtually no impact on real output, while shocks to broad money have a temporary impact on real output before becoming inflationary. Both types of shocks seem to trigger a monetary policy response, since the short-term interest rate adjusts quickly.

Suggested Citation

  • Gunnar Jonsson, 1999. "Inflation, Money Demand, and Purchasing Power Parity in South Africa," IMF Working Papers 99/122, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:99/122
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    References listed on IDEAS

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    Cited by:

    1. Janine Aron & John Muellbauer, 2002. "Interest Rate Effects on Output: Evidence from a GDP Forecasting Model for South Africa," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 185-213.
    2. Ilker Domac, 2003. "Explaining and Forecasting Inflation in Turkey," Working Papers 0306, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    3. M S Mohanty & Marc Klau, 2001. "What determines inflation in emerging market economies?," BIS Papers chapters,in: Bank for International Settlements (ed.), Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries, volume 8, pages 1-38 Bank for International Settlements.
    4. Pelipas, Igor, 2006. "Money demand and inflation in Belarus: Evidence from cointegrated VAR," Research in International Business and Finance, Elsevier, vol. 20(2), pages 200-214, June.
    5. Jeannine Bailliu & Daniel Garcés & Mark Kruger & Miguel Messmacher, 2003. "Explaining and Forecasting Inflation in Emerging Markets: The Case of Mexico," Staff Working Papers 03-17, Bank of Canada.
    6. Emilio Sacerdoti & Yuan Xiao, 2001. "Inflation Dynamics in Madagascar, 1971-2000," IMF Working Papers 01/168, International Monetary Fund.
    7. Bogdan Lissovolik, 2003. "Determinants of Inflation in a Transition Economy; The Case of Ukraine," IMF Working Papers 03/126, International Monetary Fund.

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