Abstract
Does the reaction of wage inflation to the exchange rate depreciation shock depend on the inflation regimes? Does the size of the second-round effects of the exchange rate depreciation shocks on wage inflation depend on the inflation regimes? Evidence shows the average wage settlement rises following an exchange rate depreciation shock. Counterfactual analysis reveals that the peak of second-round effects is nearly a one-third of the peak of inflation reaction in the low inflation regime. By contrast, the peak of second-round effects is nearly one half of the peak of inflation reaction in the high inflation regime. This evidence shows that there is increased likelihood of magnified second-round effects of the exchange rate depreciation effects in the high inflation regimes than in the low inflation regime.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Enders, A., & Enders, Z. (2017). Second-round effects after oil-price shocks: Evidence for the Euro area and Germany. Economics Letters, 159, 208–213.
Laflèche, T. (1996–1997). The impact of exchange rate movements on consumer prices. Bank of Canada Review (Winter), 21–32.
Mishra, P., & Spilimbergo, A. (2009). Exchange rates and wages in an integrated world (IMF Working Chapter No. WP/09/44).
Ndou, E., & Gumata, N. (2017). Inflation dynamics in South Africa: The role of thresholds, exchange rate pass-through and inflation expectations on policy trade-offs. Cham: Palgrave Macmillan.
Taylor, J. B. (2000). Low inflation, pass-through, and the pricing power of firms. European Economic Review, 44(7), 1389–1408.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2019 The Author(s)
About this chapter
Cite this chapter
Ndou, E., Gumata, N., Tshuma, M.M. (2019). How Big Are the Second Round Effects of the Exchange Rate Depreciation Transmitted via Consumer Price Inflation to Average Wage Settlements?. In: Exchange Rate, Second Round Effects and Inflation Processes. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-13932-2_3
Download citation
DOI: https://doi.org/10.1007/978-3-030-13932-2_3
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-030-13931-5
Online ISBN: 978-3-030-13932-2
eBook Packages: Economics and FinanceEconomics and Finance (R0)