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How Big Are the Second Round Effects of the Exchange Rate Depreciation Transmitted via Consumer Price Inflation to Average Wage Settlements?

  • Eliphas Ndou
  • Nombulelo Gumata
  • Mthokozisi Mncedisi Tshuma
Chapter

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.

References

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Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Eliphas Ndou
    • 1
  • Nombulelo Gumata
    • 2
  • Mthokozisi Mncedisi Tshuma
    • 3
  1. 1.South African Reserve BankPretoriaSouth Africa
  2. 2.PretoriaSouth Africa
  3. 3.National Planning Commission SecretariatPretoriaSouth Africa

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