Exchange Rate Pass-through to Import Prices, and Monetary Policy in South Africa

Janine Aron (), Greg Farrell, John Muellbauer and Peter Sinclair

Journal of Development Studies, 2014, vol. 50, issue 1, 144-164

Abstract: Understanding how import prices adjust to exchange rates helps anticipate inflation effects and monetary policy responses. This article examines exchange rate pass-through to the monthly import price index in South Africa during 1980-2009. Short-horizon pass-through estimates are calculated using both single equation equilibrium correction models and systems (Johansen) models, controlling for both domestic and foreign costs. Average pass-through is incomplete at about 50 per cent within a year and 30 per cent in six months, and in the long-run, from the Johansen analysis including feedback effects, is about 55 per cent. There is evidence of slower pass-through under inflation targeting; pass-through is found to decline with recent exchange rate volatility and there is evidence for asymmetry, with greater pass-through occurring for small appreciations.

Date: 2014
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Working Paper: Exchange Rate Passthrough to Import Prices and Monetary Policy in South Africa (2012)
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DOI: 10.1080/00220388.2013.847179

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