Does monetary policy react asymmetrically to exchange rate misalignments? Evidence for South Africa

This paper examines the impact of exchange rates on the monetary policy conduct of South Africa’s central bank (SARB). We also examine whether the SARB’s responses depend on whether South Africa’s exchange rate is undervalued or not. To investigate these questions, we incorporate a real exchange rat...

Ausführliche Beschreibung

Gespeichert in:
Bibliographische Detailangaben
Veröffentlicht in:Empirical economics 2020-04, Vol.58 (4), p.1639-1658
Hauptverfasser: Mateane, Lebogang, Proaño, Christian R.
Format: Artikel
Sprache:eng
Schlagworte:
Online-Zugang:Volltext
Tags: Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
Beschreibung
Zusammenfassung:This paper examines the impact of exchange rates on the monetary policy conduct of South Africa’s central bank (SARB). We also examine whether the SARB’s responses depend on whether South Africa’s exchange rate is undervalued or not. To investigate these questions, we incorporate a real exchange rate misalignment term into a forward-looking Taylor-type policy rule. We find empirical evidence supporting the hypothesis that the SARB responds asymmetrically to undervalued real exchange rates. Finally, a general result is that the SARB allocates more weight towards expected inflation stabilization, a lower weight towards output gap stabilization and the lowest weight towards the exchange rate.
ISSN:0377-7332
1435-8921
DOI:10.1007/s00181-018-1595-4