Abstract
Does the size of the second-round effects on growth in total remuneration per worker due to the exchange rate depreciation shock vary according to the inflation regimes? The second-round effects are smaller or dampened when inflation expectations are in the low inflation regime while these are elevated in the high inflation regime. Evidence shows that when inflation expectations are in the low inflation regime, the repo rate tends to be at lower levels than that would prevail if second-round effects were not considered. In addition, the weakening impact of the second-round effects on the repo rate increase following an exchange rate depreciation shock is much bigger when inflation expectations coincides with consumer price inflation being below 4.5% than just below 6% threshold.
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References
Enders, A., & Enders, Z. (2017). Second-round effects after oil-price shocks: Evidence for the Euro area and Germany. Economics Letters, 159, 208–213.
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Ndou, E., & Gumata, N. (2017). Inflation dynamics in South Africa: The role of thresholds, exchange rate pass-through and inflation expectations on policy trade-offs. Cham: Palgrave Macmillan.
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Ndou, E., Gumata, N., Tshuma, M.M. (2019). Does the Size of Second-Round Effects on Growth in Total Remuneration Per Worker Due to Exchange Rate Depreciation Shock Vary According to Inflation Regimes?. In: Exchange Rate, Second Round Effects and Inflation Processes. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-13932-2_4
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DOI: https://doi.org/10.1007/978-3-030-13932-2_4
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Publisher Name: Palgrave Macmillan, Cham
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Online ISBN: 978-3-030-13932-2
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