Working Paper: CEPR ID: DP9735
Authors: Janine Aron; Kenneth Creamer; John Muellbauer; Neil Rankin
Abstract: A sizeable literature examines exchange rate pass-through to disaggregated import prices but very few micro-studies focus on consumer prices. This paper explores exchange rate pass-through to consumer prices in South Africa during 2002-2007, using a unique data set of highly disaggregated data at the product and outlet level. The paper adopts an empirical approach that allows pass-through to be calculated over various horizons, including controls for domestic and foreign costs. It studies how pass-through differs across types of consumption goods and services and draws some aggregate implications about pass-through, using actual weights from the CPI basket. The heterogeneity of pass-through for different food sub-components and the role of switches between import and export parity pricing of maize is investigated and found significant for five out of ten food sub-components. Overall pass-through to the almost 63 percent of the CPI covered is estimated at about 30 percent after two years, but is higher for food.
Keywords: consumer prices; CPI; exchange rate passthrough; exchange rate volatility; food prices; goods prices; monetary policy; services prices
JEL Codes: C23; C51; C52; E3; E31; E52; E58; F31; F39
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exchange rate changes (F31) | consumer prices (P22) |
| import and export parity pricing (F14) | passthrough rates (G19) |