Exchange Rate Volatility and Pass-Through to Inflation in South Africa

27 Pages Posted: 22 Jan 2020

See all articles by Ken Miyajima

Ken Miyajima

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: December 2019

Abstract

Does the South African rand's relatively large volatility affect inflation? To shed some light on this question, a standard estimation technique of exchange rate pass-through to inflation is extended to incorporate exchange rate volatility. Estimated results suggest that higher exchange rate volatility tends to increase core inflation but to a relatively limited extent in South Africa. The finding lends support to the policy of allowing the rand to float freely and work as a shock absorber, consistent with the nation's successful inflation targeting regime.

Keywords: Unit labor cost, Exchange rate policy, Exchange rate pass-through, Exchange policy, Exchange rate shocks, exchange rate volatility, inflation, WP, core inflation, volatility, SARB, output gap, rand

JEL Classification: E31, E58, F31, O24, E52, E01, Q02

Suggested Citation

Miyajima, Ken, Exchange Rate Volatility and Pass-Through to Inflation in South Africa (December 2019). IMF Working Paper No. 19/277, Available at SSRN: https://ssrn.com/abstract=3523150

Ken Miyajima (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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