Prague Economic Papers 2010, 19(4):291-306 | DOI: 10.18267/j.pep.378

Exchange Rate Pass-Through To Domestic Prices: The Case of South Africa

Matthew Kofi Ocran
Department of Economics, Nelson Mandela Metropolitan University, South Summer Strand Campus, Port Elizabeth 6031, South Africa (matthew.ocran@nmmu.ac.za).

This paper examines the exchange rate pass-through to import, producer and consumer prices in South Africa using monthly data covering the period 2000M1 to 2009M5. The study uses innovation accounting tools (impulse response and variance decomposition) within the framework of an unrestricted VAR to examine the degree of pass-through as well as the relative importance of a number of variables in explaining changes in domestic prices. The key findings suggest that after 1 per cent shock to nominal effective exchange rate, the level of CPI increases by 0.125 per cent, giving a pass-through elasticity of 13 per cent. However, the pass-through elasticity of producer price is 20 per cent after 24 months suggesting that favourable shocks to producer price inflation can have considerable moderating effect on CPI inflation.

Keywords: exchange rate, pass-through, domestic prices, VAR, South Africa
JEL classification: C32, E31, E37, F31, O52

Published: January 1, 2010  Show citation

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Ocran, M.K. (2010). Exchange Rate Pass-Through To Domestic Prices: The Case of South Africa. Prague Economic Papers, 19(4), 291-306. doi: 10.18267/j.pep.378
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