Inflation, Money Demand, and Purchasing Power Parity in South Africa

Gunnar Jonsson

No 1999/122, IMF Working Papers from International Monetary Fund

Abstract: This empirical study for South Africa indicates that there exists a stable money demand type of relationship among domestic prices, broad money, real income, and interest rates, as well as a long-run relationship among domestic prices, foreign prices, and the nominal exchange rate. In the short run, shocks to the nominal exchange rate affect domestic prices but have virtually no impact on real output, while shocks to broad money have a temporary impact on real output before becoming inflationary. Both types of shocks seem to trigger a monetary policy response, since the short-term interest rate adjusts quickly.

Keywords: WP; money demand; nominal exchange rate; Inflation; purchasing power parity; cointegration; inflation differential; term structure; nominal exchange rate movement; error-correction term; integrating vector; domestic price; inflation equation; inflation development; inflation adjustment; inflation forecasting perspective; price level; inflation expectation; Demand for money; Exchange rates; Monetary base; Nominal effective exchange rate; Africa (search for similar items in EconPapers)
Pages: 28
Date: 1999-09-01
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Citations: View citations in EconPapers (16)

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