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Rand/US Dollar Exchange Rate Pass-Through and the Inflation Environment

  • Eliphas Ndou
  • Nombulelo Gumata
Chapter
  • 352 Downloads

Abstract

This chapter establishes an inflation threshold that leads to a source of non-linearity in the exchange rate pass-through (ERPT). Findings establish that the ERPT is high when the R/US$ exchange rate depreciates at the time when inflation exceeds the threshold. This suggests that the R/US$ exchange rate depreciation is a significant driver of inflation, especially in episodes when inflation is above the threshold. Furthermore, the inflation regime has an impact on the persistence of the R/US$ exchange rate depreciation shock and inflation persistence. The half-life of the R/US$ exchange rate depreciation shocks in the higher inflation regime is double that in the lower inflation regime. The policy implication of the results is that the inflation threshold around 4 per cent carries economic and welfare benefits in many ways. The pass-through is lower below this threshold and the existing inflationary environment plays a central role.

Keywords

Exchange Rate Monetary Policy Inflation Rate Exchange Rate Volatility Exchange Rate Change 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Eliphas Ndou
    • 1
  • Nombulelo Gumata
    • 1
  1. 1.South African Reserve BankPretoriaSouth Africa

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