An analysis of exchange rate pass-through to prices in South Africa
- Authors: Karoro, Tapiwa Daniel
- Date: 2008
- Subjects: Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , Prices -- South Africa , Banks and banking -- South Africa , South Africa -- Economic policy
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:953 , http://hdl.handle.net/10962/d1002687 , Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , Prices -- South Africa , Banks and banking -- South Africa , South Africa -- Economic policy
- Description: The fact that South Africa has a floating exchange rate policy as well as an open trade policy leaves the country’s import, producer and consumer prices susceptible to the effects of exchange rate movements. Given the central role that inflation targeting occupies in South Africa’s monetary policy, it becomes necessary to determine the nature of influence of exchange rate changes on domestic prices. To this end, this thesis examines the magnitude and speed of exchange rate pass-through (ERPT) to import, producer and consumer prices in South Africa. Furthermore, it explores whether the direction and size of changes in the exchange rate have different pass-through effects on import prices, that is, whether the exchange rate pass-through is symmetric or asymmetric. The paper uses monthly data covering the period January 1980 to December 2005. In investigating ERPT, two main stages are identified. The initial stage is the transmission of fluctuations in the exchange rate to import prices, while the second-stage entails the pass-through of changes in import prices to producer and consumer prices. The first stage is estimated using the Johansen (1991) and (1995) cointegration techniques and a vector error correction model (VECM). The second stage pass-through is determined by estimating impulse response and variance decomposition functions, as well as conducting block exogeneity Wald tests. The study follows Wickremasinghe and Silvapulle’s (2004) approach in estimating pass-through asymmetry with respect to appreciations and depreciations. In addition, the thesis adapts the analytical framework of Wickremasinghe and Silvapulle (2004) to investigate the pass-through of large and small changes in the exchange rate to import prices. The results suggest that ERPT in South Africa is incomplete but relatively high. Furthermore, ERPT is found to be higher in periods of rand depreciation than appreciation which supports the binding quantity constraint theory. There is also some evidence that pass-through is higher in periods of small changes than large changes in the exchange rate, which supports the menu cost theory when invoices are denominated in the exporters’ currency.
- Full Text:
- Date Issued: 2008
- Authors: Karoro, Tapiwa Daniel
- Date: 2008
- Subjects: Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , Prices -- South Africa , Banks and banking -- South Africa , South Africa -- Economic policy
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:953 , http://hdl.handle.net/10962/d1002687 , Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , Prices -- South Africa , Banks and banking -- South Africa , South Africa -- Economic policy
- Description: The fact that South Africa has a floating exchange rate policy as well as an open trade policy leaves the country’s import, producer and consumer prices susceptible to the effects of exchange rate movements. Given the central role that inflation targeting occupies in South Africa’s monetary policy, it becomes necessary to determine the nature of influence of exchange rate changes on domestic prices. To this end, this thesis examines the magnitude and speed of exchange rate pass-through (ERPT) to import, producer and consumer prices in South Africa. Furthermore, it explores whether the direction and size of changes in the exchange rate have different pass-through effects on import prices, that is, whether the exchange rate pass-through is symmetric or asymmetric. The paper uses monthly data covering the period January 1980 to December 2005. In investigating ERPT, two main stages are identified. The initial stage is the transmission of fluctuations in the exchange rate to import prices, while the second-stage entails the pass-through of changes in import prices to producer and consumer prices. The first stage is estimated using the Johansen (1991) and (1995) cointegration techniques and a vector error correction model (VECM). The second stage pass-through is determined by estimating impulse response and variance decomposition functions, as well as conducting block exogeneity Wald tests. The study follows Wickremasinghe and Silvapulle’s (2004) approach in estimating pass-through asymmetry with respect to appreciations and depreciations. In addition, the thesis adapts the analytical framework of Wickremasinghe and Silvapulle (2004) to investigate the pass-through of large and small changes in the exchange rate to import prices. The results suggest that ERPT in South Africa is incomplete but relatively high. Furthermore, ERPT is found to be higher in periods of rand depreciation than appreciation which supports the binding quantity constraint theory. There is also some evidence that pass-through is higher in periods of small changes than large changes in the exchange rate, which supports the menu cost theory when invoices are denominated in the exporters’ currency.
- Full Text:
- Date Issued: 2008
Bank credit extension to the private sector and inflation in South Africa
- Authors: Dlamini, Samuel Nkosinathi
- Date: 2009
- Subjects: Bank loans -- South Africa , Inflation (Finance) -- South Africa , Money supply -- South Africa , Interest rates -- South Africa , Banks and banking -- South Africa , Foreign exchange rates -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:959 , http://hdl.handle.net/10962/d1002693 , Bank loans -- South Africa , Inflation (Finance) -- South Africa , Money supply -- South Africa , Interest rates -- South Africa , Banks and banking -- South Africa , Foreign exchange rates -- South Africa
- Description: This study investigates the contribution of bank credit extension to the private sector to inflation in South Africa, covering the period 1970:1-2006:4. The long-run impact of bank credit on inflation is investigated by means of the Johansen co integration model. The short-run ynamics of the inflation is subsequently modelled by means of the Vector Error Correction Model (VECM). Using the Johansen methodology, the study identifies two co integrating equations linking inflation and its eterminants. The results suggest that the long-run relationship between inflation and bank credit to the private sector is negative and statistically significant at 10% level. The determinants that are significant at 5% level are: money supply, real gross domestic product, the money market rate, rand/dollar exchange rate and imports. The results are consistent with previous findings. The speed of adjustment in response to deviation from the equilibrium path was found to be negative at 10.56% per quarter, which is consistent with findings by Ohnsorge and Oomes (2003) for Russia. Both the signs and the magnitude of the coefficients suggest that the co integrating vector describes a long-run inflation equation. The impulse response functions confirm the theoretical expectations except for the import prices. The most persistent and significant shocks observed are on impulse response functions of money supply and bank credit to the private sector. The variance decomposition results also suggest that inflation responds quicker to innovations from money supply and the money market rate. The overall results provide evidence that the surge in inflation is associated with an increase in money supply as well as the instability in exchange rate. The effects of exchange rate fluctuation on inflation are reflected through changes in import prices. Based on the results we conclude that an increase in bank credit during the period 1970:1-2006:4 had a negative mpact on inflation in South Africa.
- Full Text:
- Date Issued: 2009
- Authors: Dlamini, Samuel Nkosinathi
- Date: 2009
- Subjects: Bank loans -- South Africa , Inflation (Finance) -- South Africa , Money supply -- South Africa , Interest rates -- South Africa , Banks and banking -- South Africa , Foreign exchange rates -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:959 , http://hdl.handle.net/10962/d1002693 , Bank loans -- South Africa , Inflation (Finance) -- South Africa , Money supply -- South Africa , Interest rates -- South Africa , Banks and banking -- South Africa , Foreign exchange rates -- South Africa
- Description: This study investigates the contribution of bank credit extension to the private sector to inflation in South Africa, covering the period 1970:1-2006:4. The long-run impact of bank credit on inflation is investigated by means of the Johansen co integration model. The short-run ynamics of the inflation is subsequently modelled by means of the Vector Error Correction Model (VECM). Using the Johansen methodology, the study identifies two co integrating equations linking inflation and its eterminants. The results suggest that the long-run relationship between inflation and bank credit to the private sector is negative and statistically significant at 10% level. The determinants that are significant at 5% level are: money supply, real gross domestic product, the money market rate, rand/dollar exchange rate and imports. The results are consistent with previous findings. The speed of adjustment in response to deviation from the equilibrium path was found to be negative at 10.56% per quarter, which is consistent with findings by Ohnsorge and Oomes (2003) for Russia. Both the signs and the magnitude of the coefficients suggest that the co integrating vector describes a long-run inflation equation. The impulse response functions confirm the theoretical expectations except for the import prices. The most persistent and significant shocks observed are on impulse response functions of money supply and bank credit to the private sector. The variance decomposition results also suggest that inflation responds quicker to innovations from money supply and the money market rate. The overall results provide evidence that the surge in inflation is associated with an increase in money supply as well as the instability in exchange rate. The effects of exchange rate fluctuation on inflation are reflected through changes in import prices. Based on the results we conclude that an increase in bank credit during the period 1970:1-2006:4 had a negative mpact on inflation in South Africa.
- Full Text:
- Date Issued: 2009
Inflation, exchange rate and unemployment nexuses in South Africa: lessons from the Inflation Targeting Framework
- Taderera, Christie Simbarashe
- Authors: Taderera, Christie Simbarashe
- Date: 2021-12
- Subjects: Foreign exchange rates -- South Africa , Inflation (Finance) -- South Africa , South Africa
- Language: English
- Type: Master's theses , text
- Identifier: http://hdl.handle.net/10948/54752 , vital:47656
- Description: Unemployment, inflation and exchange rate are key macroeconomic indicators and determinants of the development of a nation, but their relationship remain ambiguous. From the last quarter of 1994 to the same period in 2019, unemployment in South Africa increased from 20 percent to 29.1 percent while over the same period, inflation fell from 15 percent to 4.5 percent. Exchange rate at the same time has increased from 3.55Rand: 1USD to 14.45Rand: 1USD (World Bank Data, 2020). With the adoption of inflation targeting framework as a way of stabilising the general price level which has a trickle effect on unemployment, South Africa has a relatively high unemployment rate of 29.1 percent. This study investigates the relationship between unemployment, inflation and exchange rate in South Africa from 2009 Quarter 1 to 2020 Quarter 1. Furthermore, the study examines the relationship between employment, inflation and exchange rate from 1970 to 2019. Lastly the study investigates the inflation threshold from 1970 to 2019. The study employs the Autoregressive Distributed Lag (ARDL) model and shows that there is no short run and long run relationship between unemployment, inflation and exchange rate. There was however a short run and long run relationship between employment, inflation, exchange rate. In a long run analysis, there is a positive relationship between employment and economic growth for both in the short run and long run. Using the conditional least squares method, an inflation threshold of 5% was found to maximise employment in South Africa vindicating the inflation target of 3-5 percent. Based on the findings of this study, it is recommended that policy measures that increase government expenditure and economic growth be made. Thus, policy makers should increase government expenditure, either by running budget deficits or by collecting more revenue to finance its expenditures so as to increase employment or decrease unemployment without incurring the risk of crowding out. Additionally, from the inflation threshold examination, the current interest rate manipulation by raising or lowering the rate must be used to ensure inflation is kept below 5 per cent. , Thesis (MCom) -- Faculty of Business and Economic Sciences, 2021
- Full Text:
- Date Issued: 2021-12
- Authors: Taderera, Christie Simbarashe
- Date: 2021-12
- Subjects: Foreign exchange rates -- South Africa , Inflation (Finance) -- South Africa , South Africa
- Language: English
- Type: Master's theses , text
- Identifier: http://hdl.handle.net/10948/54752 , vital:47656
- Description: Unemployment, inflation and exchange rate are key macroeconomic indicators and determinants of the development of a nation, but their relationship remain ambiguous. From the last quarter of 1994 to the same period in 2019, unemployment in South Africa increased from 20 percent to 29.1 percent while over the same period, inflation fell from 15 percent to 4.5 percent. Exchange rate at the same time has increased from 3.55Rand: 1USD to 14.45Rand: 1USD (World Bank Data, 2020). With the adoption of inflation targeting framework as a way of stabilising the general price level which has a trickle effect on unemployment, South Africa has a relatively high unemployment rate of 29.1 percent. This study investigates the relationship between unemployment, inflation and exchange rate in South Africa from 2009 Quarter 1 to 2020 Quarter 1. Furthermore, the study examines the relationship between employment, inflation and exchange rate from 1970 to 2019. Lastly the study investigates the inflation threshold from 1970 to 2019. The study employs the Autoregressive Distributed Lag (ARDL) model and shows that there is no short run and long run relationship between unemployment, inflation and exchange rate. There was however a short run and long run relationship between employment, inflation, exchange rate. In a long run analysis, there is a positive relationship between employment and economic growth for both in the short run and long run. Using the conditional least squares method, an inflation threshold of 5% was found to maximise employment in South Africa vindicating the inflation target of 3-5 percent. Based on the findings of this study, it is recommended that policy measures that increase government expenditure and economic growth be made. Thus, policy makers should increase government expenditure, either by running budget deficits or by collecting more revenue to finance its expenditures so as to increase employment or decrease unemployment without incurring the risk of crowding out. Additionally, from the inflation threshold examination, the current interest rate manipulation by raising or lowering the rate must be used to ensure inflation is kept below 5 per cent. , Thesis (MCom) -- Faculty of Business and Economic Sciences, 2021
- Full Text:
- Date Issued: 2021-12
The exchange rate volatility and inflation rate in South Africa
- Authors: Milisi, Busisiwe
- Date: 2015
- Subjects: Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa
- Language: English
- Type: Thesis , Masters , MA
- Identifier: http://hdl.handle.net/10948/9151 , vital:26469
- Description: The study examines exchange rate volatility and inflation in South Africa over the period of 1987- 2012 using annual data. With the use of VAR, ADF unit root testing and Johansen for cointegration the study examines the relationship between exchange rate volatility and inflation in South Africa. The study also examines other variables, which are Money Supply, Trade Openness, Real Interest Rate and Real Gross Domestic Product (RGDP), if they had an impact on inflation and had contributed significantly to inflation during the period under review. All macroeconomic variables were identified to have an impact on inflation in the long-run. Exchange rate volatility was identified as the main variable that had substantial impact on inflation rate. The study recommended the current system used by the authorities was working well, as they can pursue a countercyclical macro policy, but also continue to manage the float by intervening to stabilize the exchange rate. The reason for this recommendation was that because one of the advantages of floating exchange rate is freeing internal policy, with a floating exchange rate, balance of payments disequilibrium would be rectified by a change in the external price of the currency. However, with a fixed rate, curing a deficit could involve a general deflationary policy resulting in unpleasant consequences for the whole economy such as unemployment.
- Full Text:
- Date Issued: 2015
- Authors: Milisi, Busisiwe
- Date: 2015
- Subjects: Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa
- Language: English
- Type: Thesis , Masters , MA
- Identifier: http://hdl.handle.net/10948/9151 , vital:26469
- Description: The study examines exchange rate volatility and inflation in South Africa over the period of 1987- 2012 using annual data. With the use of VAR, ADF unit root testing and Johansen for cointegration the study examines the relationship between exchange rate volatility and inflation in South Africa. The study also examines other variables, which are Money Supply, Trade Openness, Real Interest Rate and Real Gross Domestic Product (RGDP), if they had an impact on inflation and had contributed significantly to inflation during the period under review. All macroeconomic variables were identified to have an impact on inflation in the long-run. Exchange rate volatility was identified as the main variable that had substantial impact on inflation rate. The study recommended the current system used by the authorities was working well, as they can pursue a countercyclical macro policy, but also continue to manage the float by intervening to stabilize the exchange rate. The reason for this recommendation was that because one of the advantages of floating exchange rate is freeing internal policy, with a floating exchange rate, balance of payments disequilibrium would be rectified by a change in the external price of the currency. However, with a fixed rate, curing a deficit could involve a general deflationary policy resulting in unpleasant consequences for the whole economy such as unemployment.
- Full Text:
- Date Issued: 2015
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