Exchange Rate, Second Round Effects and Inflation Processes: Evidence From South Africa
by Eliphas Ndou (Author), Nombulelo Gumata (Author), Mthokozisi Mncedisi Tshuma (Author)

About the Author
Eliphas Ndou is an economist at the South African Reserve Bank, and lectures at the University of the Witwatersrand, South Africa. He holds a PhD in economics from this University. He has co-authored 8 books in the areas of international finance, inequality, inflation, monetary and fiscal policy, applied macroeconomics and labour economics, and macroprudential policy.
Nombulelo Gumata is an economist and holds a Master’s degree in economics from the University of Johannesburg, South Africa. She has co-authored several books in the areas of money and banking regulation, international finance and macroeconomics, macroprudential tools and financial stability, labour markets, monetary and fiscal policy.
Mthokozisi Mncedisi Tshuma, holds a PhD in Economics from the University of the Witwatersrand, South Africa. He is Senior Sector Expert in the National Planning Commission Secretariat, South Africa.

About this book
This book focuses on the exchange rate pass-through (ERPT), second round effects and the inflation process in South Africa. The authors demonstrate that magnitudes of the second round effects of the exchange rate depreciation and oil price shocks depend on inflation regimes. The impact of positive oil price shocks on inflation is weakened by monetary policy credibility. Evidence shows the influence of oil price on unit labour costs and correlation between exchange rate changes and inflation has weakened. In addition, ERPT is reduced by low business and consumer confidence, high trade openness, low inflation and high exchange rate volatility which weaken real economic activity. Both monetary and fiscal policy credibility lowers the sizes of ERPT to inflation and inflation expectations. Fiscal policy via fuel levies, administered prices and public transport inflation channel impacts the responses of monetary policy to inflation shocks. The authors show that second round effects contribute very little to wage inflation following an exchange rate depreciation shock. Both lending rate and household consumption responds asymmetrical to repo rate changes.
This book will appeal to policymakers, students, academics and analysts.

Brief contents
Part I The Changing Size of Second-Round Effects 1 Introduction 3
2 Policy Implications of ERPT and Ongoing Debates 19
3 How Big Are the Second Round Effects of the Exchange Rate Depreciation Transmitted via Consumer Price Inflation to Average Wage Settlements? 37
4 Does the Size of Second-Round Effects on Growth in Total Remuneration Per Worker Due to Exchange Rate Depreciation Shock Vary According to Inflation Regimes? 49
5 Do Inflation Regimes Influence the Size of Second-Round Effects on Private Sector Wage Inflation Following an Exchange Rate Depreciation Shock? 59
6 Do Inflation Regimes Matter for the Sizes of Second-Round Effects of Oil Price Shocks to Consumer Price Inflation via the Unit Labour Costs Channel? 69
Part II Monetary Policy Credibility and Time-Varying Exchange Rate Pass-Through
7 Monetary Policy Credibility and the Time-Varying Exchange Rate Pass-Through to Consumer Price Inflation 83
8 Monetary Policy Credibility and the Exchange Rate Pass-Through to Inflation 97
9 Does the Monetary Policy Channel Impact the Transmission of Exchange Rate Depreciation Shocks to Inflation? 111
10 Does Monetary Policy Credibility Impact the Responses of Unit Labour Costs to Exchange Rate Depreciation Shocks? 121
11 Does Monetary Policy Credibility Play a Role in the Transmission of Oil Price Shocks to Inflation Expectations? 131
12 Does Monetary Policy Credibility Affect Market-Based Inflation Expectations? 139
Part III Trade Openness, Consumer and Business Confidence and the Exchange Rate Pass-Through
13 Does the Consumer Confidence Channel Affect the Response of Inflation to Exchange Rate Depreciation Shocks? 151
14 Does Weak Business Confidence Impact the Pass-Through of the Exchange Rate Depreciation Shocks to Inflation? 163
15 Does the Exchange Rate Volatility Matter for the Reaction of Consumer Price Inflation to Exchange Rate Depreciation Shock? 177
16 Does Trade Openness or Globalisation Matter for the Response of Inflation to Exchange Rate Depreciation Shocks? 199
Part IV Fiscal Policy Credibility and Time-Varying Exchange Rate Pass-Through
17 Does Fiscal Policy Credibility Matter for the Exchange Rate Pass-Through to Consumer Price Inflation in South Africa? 217
18 Has the Fiscal Policy Credibility Shock Impacted the Time-Varying Exchange Rate Pass-Through to Consumer Price Inflation? 227
19 Is the Impact of High Monetary Policy Credibility on Consumer Price Inflation and the ERPT Reinforced by Fiscal Policy Credibility? 239
Part V Regulated Prices, Inflation Process and the Influence on Monetary Policy
20 What Is the Role and Costs of Administered Prices? Evidence from Monetary Policy Responses to Positive Inflation Shocks 255
21 Monetary and Fiscal Policy Interactions on the Inflation Process: The Role of the Fuel Levies Channel 271
22 Monetary and Fiscal Policy Interactions in the Inflation Process: The Role of Public Transport Inflation Channel 283
23 Monetary Policy and Inflation Rates by Expenditure Deciles and Rural Areas 297
Part VI Asymmetric Interest Rate Pass-Through
24 Is There Evidence of Asymmetries in the Adjustment of the Lending Rate Responses to Repo Rate Changes? 309
25 Is There Evidence of Rigidity in the Corporate Lending Rate Adjustment Following Repo Rate Changes? 327
26 Does the Flexible Mortgage Rate Exhibit Asymmetric Response to Changes in the Repo Rate? Are the Effects Consistent with Upward or Downward Rigidity? 339
27 What Is the Role of Competition in the Banking Sector on the Interest Rate Pass-Through and Loan Intermediation Mark-Up? 351
28 Does Consumption Growth Respond Asymmetrically to Positive and Negative Repo Rate Changes? 371
29 Does the Household Financial Wealth Explain the Asymmetric Response of Consumption to Monetary Policy Shock in South Africa? 381
References 391
Index 405

Pages: 416 pages
Publisher: Palgrave Macmillan; 1st ed. 2019 edition (April 24, 2019)
Language: English
ISBN-10: 303013931X
ISBN-13: 978-3030139315