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

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  • By Gunnar Jonsson

    (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, as the short-term interest rate adjusts quickly. Copyright 2001, International Monetary Fund

Suggested Citation

  • By Gunnar Jonsson, 2001. "Inflation, Money Demand, and Purchasing Power Parity in South Africa," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 1-2.
    • Handle: RePEc:pal:imfstp:v:48:y:2001:i:2:p:2
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    Citations

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    Cited by:

    1. Naraidoo, Ruthira & Paya, Ivan, 2012. "Forecasting monetary policy rules in South Africa," International Journal of Forecasting, Elsevier, vol. 28(2), pages 446-455.
    2. Chevillon, Guillaume, 2009. "Multi-step forecasting in emerging economies: An investigation of the South African GDP," International Journal of Forecasting, Elsevier, vol. 25(3), pages 602-628, July.
    3. Erik Hjalmarsson & Pär Österholm, 2010. "Testing for cointegration using the Johansen methodology when variables are near-integrated: size distortions and partial remedies," Empirical Economics, Springer, vol. 39(1), pages 51-76, August.
    4. Ruthira Naraidoo & Ivan Paya, 2010. "Forecasting Monetary Rules in South Africa," Working Papers 201007, University of Pretoria, Department of Economics.
    5. K.r. Todani, 2007. "Long‐Run M3 Demand In South Africa: A Cointegrated Var Model," South African Journal of Economics, Economic Society of South Africa, vol. 75(4), pages 681-692, December.
    6. Emmanuel Ziramba, 2007. "Demand For Money And Expenditure Components In South Africa: Assessment From Unrestricted Error‐Correction Models," South African Journal of Economics, Economic Society of South Africa, vol. 75(3), pages 412-424, September.
    7. M. Thomas Paul & G. R. Motlaleng, 2006. "The South African Rand-USA Dollar Exchange Rates and the Terms of Trade," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 4(2), pages 130-150, July.
    8. Stephen G. Hall & George Hondroyiannis & P.A.V.B. Swamy & George S. Tavlas, 2009. "Where Has All the Money Gone? Wealth and the Demand for Money in South Africa †," Journal of African Economies, Centre for the Study of African Economies, vol. 18(1), pages 84-112, January.
    9. Kevin S. Nell, 2006. "Structural Change And Nonlinearities In A Phillips Curve Model For South Africa," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 600-617, October.
    10. Durevall, Dick & Loening, Josef L. & Ayalew Birru, Yohannes, 2013. "Inflation dynamics and food prices in Ethiopia," Journal of Development Economics, Elsevier, vol. 104(C), pages 89-106.
    11. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta, 2020. "The Effectiveness Of Monetary Policy In South Africa Under Inflation Targeting: Evidence from a Time-Varying Factor-Augmented Vector Autoregressive Model," Journal of Developing Areas, Tennessee State University, College of Business, vol. 54(4), pages 55-73, October-D.
    12. repec:lan:wpaper:2364 is not listed on IDEAS
    13. repec:lan:wpaper:2444 is not listed on IDEAS
    14. repec:lan:wpaper:2587 is not listed on IDEAS
    15. Petrevski, Goran & Jovanovski, Kiril, 2010. "Demand for money in Macedonia," SEER Journal for Labour and Social Affairs in Eastern Europe, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 13(1), pages 121-136.
    16. Goujon, Michael, 2006. "Fighting inflation in a dollarized economy: The case of Vietnam," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 564-581, September.
    17. Loening, Josef L. & Durevall, Dick & Birru, Yohannes A., 2009. "Inflation dynamics and food prices in an agricultural economy : the case of Ethiopia," Policy Research Working Paper Series 4969, The World Bank.
    18. Mtonga, Elvis, 2006. "The real exchange rate of the rand and competitiveness of South Africa's trade," MPRA Paper 1192, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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