An emperical evaluation of exchange rate pass-through in South Africa on import and consumer prices.

• Main Author: Chapfuwa, Dzingai Francis
• Other Authors: Worku, Zeleke
• Format: Others
• Language: en
• Published: 2012
• Online Access: http://encore.tut.ac.za/iii/cpro/DigitalItemViewPage.external?sp=1000587

M.Tech. Business Administration. Business School. === The research report analyse the impact of exchange rate volatility on inflation. The research report conducts an analysis to reveal the extent to which changes in exchange rates result in changes in South African domestic inflation. It examines the magnitude and speed of exchange rate pass-through to import and consumer prices in South Africa. The research report further explores whether the direction and size of changes in exchange rate have different pass-through effects on import prices and finally on the consumer prices, that is whether the exchange rate pass-through is symmetric or asymmetric. Thus it analyses whether exchange rate pass-through is higher in periods of rand depreciation than appreciation. The research report also explores whether there is a positive relationship between the degree of exchange rate pass-through and inflation in line with Taylor's hypothesis. Exchange rate pass-through is found to be higher on import than consumer prices. Exchange rate pass-through is also found to be incomplete and the direction of exchange rate movement matters in South Africa, thus exchange rate pass-through is found to be higher in periods of rand depreciation than appreciation which supports the binding quantity constraint theory. A Vector Auto Regression model is used to analyse the data. The data for all the variables were obtained from the South African Reserve Bank, unless otherwise stated. The data covered the period 1994 to 2011 (quarterly)