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The High-Frequency Response of the Rand-Dollar rate to Inflation Surprises

Greg Farrell (), Shakill Hassan and Nicola Viegi ()

No 279, Working Papers from Economic Research Southern Africa

Abstract: We examine the high-frequency response of the rand-dollar nominal rate within ten-minute intervals around five minutes before, five minutes after) official inflation announcements, and show that the rand appreciates (respectively, depreciates) on impact when inflation is higher (respectively, lower) than expected. The effect only applies after the adoption of inflation targeting, and is stronger for good news. Our findings are rationalisable by the belief, among market participants, in a credible (though perhaps not particularly aggressive) inflation targeting policy in South Africa; and can be used to monitor changes in currency market perceptions about the monetary policy regime.

Keywords: high-frequency exchange rates; in‡flation surprises; Taylor rules; in‡flation targeting; credibility. (search for similar items in EconPapers)
JEL-codes: E31 E52 F30 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-mac, nep-mon and nep-mst
Date: 2012
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Working Paper: The High-Frequency Response of the Rand-Dollar Rate to Inflation Surprises (2012) Downloads
Working Paper: The High-Frequency Response of the Rand-Dollar Rate to Inflation Surprises (2012) Downloads
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