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| Title: | Small Country Experiences with Exchange Rates and Inflation: The Case of Botswana |
| Authors: | Atta, J.K. Jefferis, K.R.  Mannathoko, I. |
| Year: | 1996 |
| Periodical: | Journal of African Economies |
| Volume: | 5 |
| Issue: | 2 |
| Period: | June |
| Pages: | 293-326 |
| Language: | English |
| Geographic term: | Botswana |
| Subjects: | exchange rates inflation Economics and Trade |
| External link: | https://jae.oxfordjournals.org/content/5/2/293.full.pdf |
| Abstract: | The effectiveness of exchange rate policy depends crucially on the nature and timing of linkages between the nominal exchange rate, prices and inflation. This exchange rate policy dilemma is studied here for the case of Botswana. The paper examines the short and long-run dynamics of price formation. It considers the speed at which foreign price changes are transmitted to domestic prices, and whether there is a long-run relationship between the exchange rate and prices, as well as the importance of other influences (such as monetary policy) in price determination. The results show that there is a very strong influence in the long run of South African prices and of the rand/pula exchange rate on Botswana prices. In the short run both domestic and imported inflationary pressures determine growth in the price level. This suggests that monetary, exchange rate and fiscal policy can be used to temper inflation in the short run. Changes in the exchange rate and prices will, however, only have short-term price competitiveness effects; over time complete adjustment back to the equilibrium real exchange rate occurs. App., bibliogr., notes, ref., sum. |
