An Empirical Analysis of Exchange Rate Pass-Through to Prices in South Africa (2002-2016)

  • Harris Maduku Department of Economics, University of Zululand, KwaDlagenzwa
  • Irrshad Kaseeram Department of Economics, University of Zululand, KwaDlagenzwa

Abstract

South Africa is currently running inflation targeting monetary policy since the year 2000 solely to achieve price stability. However, the persistent depreciation of the rand is making keeping inflation within the stipulated band very cumbersome. The objective of this paper is to find the duration taken by price indices to respond to exchange rate fluctuations. A Recursive VAR was used to investigate exchange rate passthrough (ERPT) to tradable prices in South Africa. Using monthly data, we find producer prices contributing highly to inflation with an average of 22% of fluctuations passed to prices. Large and persistent ERPT, especially on import and producer prices accompanied by high wage demands and a depreciating currency, are worrying factors for South Africa. Policy makers are advised to consider targeting the exchange rate if inflation is to be kept under control

Downloads

Download data is not yet available.

References

Amisano, G. & Giannini, C. (1997). Topics in Structural VAR Economics. Berlin: Springer. Aron, J., et al. (2014(a). Exchange rate pass-through to import prices, and monetary policy in South Africa. Journal of Development Studies, 50(1), 144-164. Aron, J., et al. (2012(b). 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, 50(1), 101-143. Bonato, M. L. & Billmeier, M. A. (2002). Exchange rate pass-through and monetary policy in Croatia, International Monetary Fund. Choudhri, E. U. & Hakura, D. S. (2015). The exchange rate pass-through to import and export prices: The role of nominal rigidities and currency choice. Journal of International Money and Finance, 51, 1-25. Edwards, L. & Lawrence, R. Z. (2006). South African Trade Policy Matters: Trade Performance and Trade Policy. NBER Working Paper Series No. 12760. Edwards, L. & Garlick R, (2008). Trade flows and the exchange rate in South Africa. ,"CID Working Papers 135, Center for International Development at Harvard University. Jooste, C. & Jhaveri, Y. (2014). The Determinants of Time‐Varying Exchange Rate Pass‐Through in South Africa. South African Journal of Economics, 82(4), 603-615. Kabundi, A. & Schaling, E. (2013). Inflation and inflation expectations in South Africa: an attempt at explanation. South African Journal of Economics, 81(3), 346-355. Karoro, T. D., et al. (2009). Exchange rate pass‐through to import prices in South Africa: is there asymmetry? 1. South African Journal of Economics, 77(3), 380-398. Korap, L. (2007). Impact of exchange rate changes on domestic inflation: The Turkish experience. Journal of Development Economics, 14(2), 34-60. McCarthy, J. (2000). Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies. FRB of New York Staff Report, (111). Ngalawa, H. P. (2009). Paper presented at the 14th Annual Conference of the African Econometric Society, 810 July 2009, Dynamic effects of monetary policy shocks in Malawi, Abuja, Nigeria. Ouliaris, S., et al. (2016). Quantitative Macroeconomic Modeling with Structural Vector Auto regressions–An E Views Implementation. Parsley, D. C. (2012). Exchange rate pass-through in South Africa: Panel evidence from individual goods and services. Journal of Development Studies, 48(7), 832-846. Razafimahefa, I. F. (2012). Exchange rate pass-through in Sub-Saharan African economies and its determinants. Rigobon, R. (2007). Through the Pass-Through: Measuring Central Bank Credibility. CID Working Paper No. 143, Center for International Development, Harvard University, 1. Sims, C. A. (1980). Macroeconomics and reality Econometrica: Journal of the Econometric Society, 1-48. South African Reserve Bank. (2002). Exchange Rate Pass-Through and South African Import Prices, SARB Working Paper WP/02/03. Pretoria: South Africa. South African Reserve Bank. (2004). Experience of Inflation targeting in S. A. SARB Quarterly Bulletin, 242, S103.
Published
2018-11-03
How to Cite
MADUKU, Harris; KASEERAM, Irrshad. An Empirical Analysis of Exchange Rate Pass-Through to Prices in South Africa (2002-2016). Journal of Economics and Behavioral Studies, [S.l.], v. 10, n. 5, p. 187-194, nov. 2018. ISSN 2220-6140. Available at: <https://ifrnd.org/journal/index.php/jebs/article/view/2508>. Date accessed: 21 jan. 2019. doi: https://doi.org/10.22610/jebs.v10i5.2508.
Section
Research Paper