Abstract
The resilience of trade balances of the major industrialised economies such as the US and
Japan to changes in their exchange rates following the switch from fixed to floating exchange
rate regimes, triggered interest in the exchange rate pass-through relationship. Because of the
importance of the pass-through issue particularly in economic policy formulation, a sizeable
literature has developed over recent years. Comprehensive surveys of this literature include
Menon (1995), Goldberg and Knetter (1997) and McCarthy (2002). However, not much
attention has been paid to the comparison of the methodologies for estimating exchange
rate pass-through. This research report aims to address this imbalance by comparing some
of the exchange rate pass-through estimation methodologies via a Monte Carlo simulation
study, based on the South African data set. The econometric results reported in this research
report suggest that the Johansen type VECMs are superior to polynomial distributed lag
models, exchange rate pass-through to South Africa’s import prices is incomplete (around
78%) and that the speed of adjustment to long-run equilibrium is low, about 7 per cent of
disequilibrium in the previous month is corrected in the current month. We conclude that
if we are not sure about the unit root properties of the data (as is normally the case), then
the ARDL precedure is the appropriate model for empirical work.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:wits/oai:wiredspace.wits.ac.za:10539/6009 |
| Date | 06 February 2009 |
| Creators | Hove, Herbert |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | application/pdf |
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