Exchange rate pass-through using highly disaggregated micro-data
Janine Aron, John Muellbauer 16 September 2014
Using aggregate data can bias estimates of exchange rate pass-through by ignoring heterogeneity in price adjustment across sectors. This column uses micro-level price data to estimate pass-through for South Africa, using actual CPI weights to reflect changes in consumption bundles. The result is a micro-based estimate of pass-through with aggregation consistent enough to interest monetary policymakers.
The pass-through of commodity prices and exchange rates to consumer prices seems to have fallen in industrialised countries since the late 1980s. Understanding the role of pass-through is of great interest to monetary policymakers – particularly in inflation targeting countries, where forecasting inflation plays a key role. Developing and emerging market (DEM) countries have been the biggest adopters of inflation targeting (or more credible monetary policy regimes) over the last two decades. Of the African countries, the key exemplar is South Africa.
pass-through, ERPT, South Africa
Do capital controls deflect capital flows?
Paolo Giordani, Michele Ruta, Hans Weisfeld, Ling Zhu 23 June 2014
Capital controls may help countries limit large and volatile capital inflows, but they may also have spillover effects on other countries. This column discusses recent research showing that inflow restrictions have significant spillover effects as they deflect capital flows to countries with similar economic characteristics.
The size and volatility of capital flows to developing countries have increased significantly in recent years (Figure 1), leading many economists to argue that national policies and multilateral institutions are needed to govern these flows (Forbes and Klein 2013, Blanchard and Ostry 2012). The IMF itself has reviewed its position on the liberalisation and management of capital flows, while recognising that “much further work remains to be done to improve policy coordination in the financial sector” (IMF 2012, p. 28).
China, capital flows, spillovers, South Africa, capital controls, Brazil, Capital inflows, international capital flows
Failure and success of economic sanctions
Peter A.G. van Bergeijk 27 March 2012
Can international economic pressure induce policy changes? The conventional wisdom, among economists at least, is that economic sanctions, for all their posturing, won’t achieve very much. For better or worse, this column shows that this is now changing.
The discussion about the effectiveness of economic sanctions as an instrument of foreign policy recently revived due to the recent oil embargo of Iran and the European embargo on equipment for the Syrian oil and gas industry. The consensus view seems to be that economic sanctions – despite the long history of and experience with this instrument – are still completely ineffective. This may have been the case, but over the last 15 years the situation has changed.
Table 1. Key characteristics of sanctions before and after 1990
Politics and economics
democracy, North Korea, South Africa, economic sanctions, Iran, Iraq, Syria
Reforming global economic governance: A strategy for middle powers in the G20
Daniel D. Bradlow 13 August 2010
The global crisis has helped promote the G20 from supporting role to one of the leading forums on the world stage. This column argues that the G20 presents a unique opportunity for its medium-sized members to influence the global economic agenda – but only if they base their short-term actions on a long-term vision.
The global financial crisis exposed the G7 as an outdated and ineffective forum for global economic governance. In order to reinforce their credentials and their capacity, the G7 turned to the G20 and upgraded it from merely a gathering of finance ministers and central bankers to one that includes heads of state.
Global crisis Global governance
South Africa, G7, G20, global governance
South Africa and the Pittsburgh G20 leaders summit
Peter Draper, Cézanne Samuel 22 September 2009
What agenda should South Africa take into the G20 meeting in Pittsburgh? This column highlights crisis funding for distressed African economies, IMF reform, global financial governance, and resisting protectionism.
What a difference five months makes in the fortunes of our turbulent global economy. When G20 leaders met in London in April, the western financial system teetered on the brink of the abyss. Now, days before the third G20 leaders’ meeting in ten months, at Pittsburgh, the Governors of the US Federal Reserve and the Bank of England have purportedly declared the recession over.
South Africa, G20
What future for monetary policy in Zimbabwe?
Andreas Freytag, Peter Draper 28 February 2009
Zimbabwe needs major monetary reform to cure its hyperinflation. Three options are on the table – adopting a currency board, the South African Rand, or a crawling peg. This column argues against a currency board and says that “Randisation” deserves serious consideration – if South Africa will step up to the plate.
Zimbabwe is much in the news again with its newly minted unity government. It remains to be seen whether it will cohere and drive a concerted reconstruction process. Zimbabwe’s future monetary policy is of enormous importance, given the country’s infamous inflation rate.
Zimbabwe, South Africa, currency board, crawling peg, Randisation, Rand
South African objectives at the G20 leaders summit
Peter Draper 14 November 2008
This column suggests that South Africa should focus on four broad issues at the coming G20 Summit: supporting global growth, supporting regulatory reform and reconfiguring the IMF, supporting reform of Asian currency management practices, and underlining support for the Doha Round of WTO negotiations.
To the apparent surprise of G20 finance ministers and central bank governors meeting in Washington last month, George W. Bush, the outgoing US President, proposed that a formal summit of G20 heads of state convene in Washington on November 15th. This will be the first time that the G20, established in the aftermath of the Asian financial crisis of 1997-9 has been convened at the heads of state level.
WTO, IMF, financial crisis, South Africa, G20
South Africa’s current account deficit: Are proposed cures worse than the disease?
Andreas Freytag, Peter Draper 27 September 2008
The South African current account deficit has grown to large proportions in recent years, triggering strong reactions generally driven by a mercantilist bias. But this column says that wise policies will improve the competitiveness of South African firms in the long run, while possibly exacerbating the current account deficit in the short run.
South Africa stands at the cusp of a crucial political transition, the contours of which are slowly becoming clearer. This is taking place in a domestic context of high unemployment and social agitation driven by high crime levels, whilst economic growth stalls in the midst of global recessionary conditions. Hence economic policy is again the subject of intense debate. Of greatest concern is maintaining macroeconomic stability – rightly seen as a prerequisite for sustaining economic growth.
South Africa, current account deficits