Exchange Rate Pass-through to Import Prices,and Monetary Policy in South Africa |
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| Authors: | Janine Aron Greg Farrell John Muellbauer Peter Sinclair |
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| Institution: | 1. Department of Economics, University of Oxford, Oxford, UK;2. Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, Oxford, UKjanine.aron@economics.ox.ac.uk;4. South African Reserve Bank, Pretoria, South Africa;5. University of the Witwatersrand, Johannesburg, South Africa;6. Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, Oxford, UK;7. Nuffield College, University of Oxford, Oxford, UK;8. Department of Economics, University of Birmingham, Birmingham, UK |
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| Abstract: | AbstractUnderstanding how import prices adjust to exchange rates helps anticipate inflation effects and monetary policy responses. This article examines exchange rate pass-through to the monthly import price index in South Africa during 1980–2009. Short-horizon pass-through estimates are calculated using both single equation equilibrium correction models and systems (Johansen) models, controlling for both domestic and foreign costs. Average pass-through is incomplete at about 50 per cent within a year and 30 per cent in six months, and in the long-run, from the Johansen analysis including feedback effects, is about 55 per cent. There is evidence of slower pass-through under inflation targeting; pass-through is found to decline with recent exchange rate volatility and there is evidence for asymmetry, with greater pass-through occurring for small appreciations. |
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