Inflation, Money Demand, and Purchasing Power Parity in South Africa
September 1, 1999
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Summary
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.
Subject: Demand for money, Exchange rates, Foreign exchange, Monetary base, Money, Nominal effective exchange rate, Purchasing power parity
Keywords: Africa, cointegration, Demand for money, domestic price, error-correction term, Exchange rates, Inflation, inflation adjustment, inflation development, inflation differential, inflation equation, inflation expectation, inflation forecasting perspective, integrating vector, Monetary base, money demand, Nominal effective exchange rate, nominal exchange rate, nominal exchange rate movement, price level, purchasing power parity, term structure, WP
Pages:
28
Volume:
1999
DOI:
Issue:
122
Series:
Working Paper No. 1999/122
Stock No:
WPIEA1221999
ISBN:
9781451854473
ISSN:
1018-5941
