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Sovereign Spreads and Non-linear Responses of Inflation to the R/US$ Exchange Rate Depreciation Shocks

  • Eliphas Ndou
  • Nombulelo Gumata
Chapter
  • 342 Downloads

Abstract

This chapter investigates the role of sovereign credit spreads on the ERPT by estimating a threshold at which the sovereign credit spreads exert non-linear effects on the ERPT. Evidence suggests that inflation increases more due to persistent rand-US dollar depreciation shocks in the high sovereign spread regime. This means that sovereign spreads play a role in the ERPT to inflation. This evidence implies that the simultaneous occurrence of persistent exchange rate shocks and heighted sovereign spreads requires different monetary policy response relative to the low spread regime. Monetary policy is tightened more in the high sovereign spread regime relative to the small tightening in the low spread regime in order to dampen inflationary pressures from the exchange rate depreciation shocks.

Keywords

Exchange Rate Depreciation Shock Sovereign Spreads Exchange Rate Pass-through (ERPT) Spreading Regime Small Tightening 
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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