Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach

Emmanuel Pitia Zacharia Lado

doi:doi:10.11648/j.eco.20150402.13

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Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach

Emmanuel Pitia Zacharia Lado

Published in Economics (Volume 4, Issue 2)

Received: 27 March 2015 Accepted: 12 April 2015 Published: 24 April 2015

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Abstract

Using Granger-causality approach, this study was intended to establish the relationship between exchange rate and inflation measured by CPI in South Sudan using time series monthly data for the period August 2011 to November 2014. The study reveals that there exists a unidirectional causality from exchange rate to CPI without feedback. This means depreciation of South Sudanese currency is detrimental to the economy of South Sudan. Although CPI failed to cause changes in exchange rate, there is no way to conclude with greater confidence that the results are true. The effect of the pressure of an increase in price level on exchange rate could have been from the response of monetary authorities in bridging the gap between the price level and the purchasing power of people in the economy. In South Sudan, with no response from the monetary authorities to increase money supply, the effect of increase in prices on exchange rate has been suppressed and only manifests itself in terms of suffering encountered by the economic actors with consumers and mainly the low-income consumers hit hard.Given the results, there is a need for the authorities to manage the exchange rate and save the domestic currency from depreciation. In search of more information, the study recommends further research to be conducted with the aim of establishing the weaknesses and strengths of South Sudan Central Bank management in carrying out effective monetary policies in the country.

Published in	Economics (Volume 4, Issue 2)
DOI	10.11648/j.eco.20150402.13
Page(s)	34-40
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2015. Published by Science Publishing Group

Keywords

Granger-Causality, Exchange Rate, CPI, South Sudan

References

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[5]	Dwivedi, D N .2009. Managerial Economics, 7th ed., Vikas Publishing House, Delhi, India.
[6]	Greenaway, D. and G.K. Shaw .1991.macroeconomics: Theory and Policy in UK, 2nd ed., Basil Blackwell Ltd, UK.
[7]	Gujarati, Damodar N.2003. Basic Econometrics, 4th ed., Mc-Graw-Hill, Singapore.
[8]	… .2011. Econometrics BY Example, Palgrave MacMillan, UK.
[9]	Hafer, Rik (1989) Does Dollar Depreciation cause Inflation?, Federal Reserve Bank of St. Louis Review, Vo.71.No. 4, PP 16-28.
[10]	Ito, T & K. Sato .2007. Exchange rate pass-through and domestic inflation: Acomparison between East Asia and Latin American countries, REITI Discussion Paper Series No. 07.
[11]	Khodier, Aliaa Nabil .2012. Towards Inflation Targeting in Egypt: The Relationship between Exchange Rate and Inflation, SAJEMS NS, No. 3
[12]	Koop, Gary .2009. Analysis of Economic Data, 3rd ed., A John Wiley & Sons, Ltd, England.
[13]	Livingstone, I. Diejomaoh et al .1987. Economics for West Africa, 2nd ed., Heinemann Educational Books, Britain.
[14]	Madesha, Wellington et al .2013. Empirical Test of the Relationship Between Exchange Rate and Inflation in Zimbabwe, Journal of Economics and Sustainable Development, Vol. 4, No.1.
[15]	Mandizha, Blessing .2014. Inflationand Exchange Rate Depreciation: AGranger causality Test at the Naissance of Zimbabwe Infamous Hyperinflation (2001-2005), Economics and Finance Review, Vo.3. No. 9, PP. 22-42.
[16]	Maswana, J.C. 2005. Money, exchange rate and price links during hyperinflation episodes in developing economies, Graduate School of Economics, Kyoto University Japan.
[17]	Mishkin, Frederic S. 2001. The Economics of Money, Banking, and Financial markets, 6th ed., Library of Congress Cataloguing-in-Publication data, USA.
[18]	Stock, James H. & Mark W. Watson .2007. Introduction to Econometrics, 2nd ed., Person Education Inc., USA.
[19]	Tucker, Irvin B.2006. Survey of Economics, 5th ed., Thomson South-Western, USA.
[20]	Vaish, M.C. 2011. Macroeconomic Theory, 14th ed., Vikas Publishing House PVT LTD, India.

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Emmanuel Pitia Zacharia Lado. (2015). Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach. Economics, 4(2), 34-40. https://doi.org/10.11648/j.eco.20150402.13

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Emmanuel Pitia Zacharia Lado. Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach. Economics. 2015, 4(2), 34-40. doi: 10.11648/j.eco.20150402.13

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AMA Style

Emmanuel Pitia Zacharia Lado. Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach. Economics. 2015;4(2):34-40. doi: 10.11648/j.eco.20150402.13

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@article{10.11648/j.eco.20150402.13,
  author = {Emmanuel Pitia Zacharia Lado},
  title = {Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach},
  journal = {Economics},
  volume = {4},
  number = {2},
  pages = {34-40},
  doi = {10.11648/j.eco.20150402.13},
  url = {https://doi.org/10.11648/j.eco.20150402.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20150402.13},
  abstract = {Using Granger-causality approach, this study was intended to establish the relationship between exchange rate and inflation measured by CPI in South Sudan using time series monthly data for the period August 2011 to November 2014. The study reveals that there exists a unidirectional causality from exchange rate to CPI without feedback. This means depreciation of South Sudanese currency is detrimental to the economy of South Sudan. Although CPI failed to cause changes in exchange rate, there is no way to conclude with greater confidence that the results are true. The effect of the pressure of an increase in price level on exchange rate could have been from the response of monetary authorities in bridging the gap between the price level and the purchasing power of people in the economy. In South Sudan, with no response from the monetary authorities to increase money supply, the effect of increase in prices on exchange rate has been suppressed and only manifests itself in terms of suffering encountered by the economic actors with consumers and mainly the low-income consumers hit hard.Given the results, there is a need for the authorities to manage the exchange rate and save the domestic currency from depreciation. In search of more information, the study recommends further research to be conducted with the aim of establishing the weaknesses and strengths of South Sudan Central Bank management in carrying out effective monetary policies in the country.},
 year = {2015}
}

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TY  - JOUR
T1  - Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach
AU  - Emmanuel Pitia Zacharia Lado
Y1  - 2015/04/24
PY  - 2015
N1  - https://doi.org/10.11648/j.eco.20150402.13
DO  - 10.11648/j.eco.20150402.13
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 34
EP  - 40
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20150402.13
AB  - Using Granger-causality approach, this study was intended to establish the relationship between exchange rate and inflation measured by CPI in South Sudan using time series monthly data for the period August 2011 to November 2014. The study reveals that there exists a unidirectional causality from exchange rate to CPI without feedback. This means depreciation of South Sudanese currency is detrimental to the economy of South Sudan. Although CPI failed to cause changes in exchange rate, there is no way to conclude with greater confidence that the results are true. The effect of the pressure of an increase in price level on exchange rate could have been from the response of monetary authorities in bridging the gap between the price level and the purchasing power of people in the economy. In South Sudan, with no response from the monetary authorities to increase money supply, the effect of increase in prices on exchange rate has been suppressed and only manifests itself in terms of suffering encountered by the economic actors with consumers and mainly the low-income consumers hit hard.Given the results, there is a need for the authorities to manage the exchange rate and save the domestic currency from depreciation. In search of more information, the study recommends further research to be conducted with the aim of establishing the weaknesses and strengths of South Sudan Central Bank management in carrying out effective monetary policies in the country.
VL  - 4
IS  - 2
ER  -

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Author Information

Emmanuel Pitia Zacharia Lado

Department of Economics, CSES, University of Juba, Juba, South Sudan

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Emmanuel Pitia Zacharia Lado. (2015). Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach. Economics, 4(2), 34-40. https://doi.org/10.11648/j.eco.20150402.13

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ACS Style

Emmanuel Pitia Zacharia Lado. Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach. Economics. 2015, 4(2), 34-40. doi: 10.11648/j.eco.20150402.13

Copy | Download

AMA Style

Emmanuel Pitia Zacharia Lado. Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach. Economics. 2015;4(2):34-40. doi: 10.11648/j.eco.20150402.13

Copy | Download

@article{10.11648/j.eco.20150402.13,
  author = {Emmanuel Pitia Zacharia Lado},
  title = {Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach},
  journal = {Economics},
  volume = {4},
  number = {2},
  pages = {34-40},
  doi = {10.11648/j.eco.20150402.13},
  url = {https://doi.org/10.11648/j.eco.20150402.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20150402.13},
  abstract = {Using Granger-causality approach, this study was intended to establish the relationship between exchange rate and inflation measured by CPI in South Sudan using time series monthly data for the period August 2011 to November 2014. The study reveals that there exists a unidirectional causality from exchange rate to CPI without feedback. This means depreciation of South Sudanese currency is detrimental to the economy of South Sudan. Although CPI failed to cause changes in exchange rate, there is no way to conclude with greater confidence that the results are true. The effect of the pressure of an increase in price level on exchange rate could have been from the response of monetary authorities in bridging the gap between the price level and the purchasing power of people in the economy. In South Sudan, with no response from the monetary authorities to increase money supply, the effect of increase in prices on exchange rate has been suppressed and only manifests itself in terms of suffering encountered by the economic actors with consumers and mainly the low-income consumers hit hard.Given the results, there is a need for the authorities to manage the exchange rate and save the domestic currency from depreciation. In search of more information, the study recommends further research to be conducted with the aim of establishing the weaknesses and strengths of South Sudan Central Bank management in carrying out effective monetary policies in the country.},
 year = {2015}
}

Copy | Download

TY  - JOUR
T1  - Test of relationship between Exchange Rate and Inflation in South Sudan: Granger-Causality Approach
AU  - Emmanuel Pitia Zacharia Lado
Y1  - 2015/04/24
PY  - 2015
N1  - https://doi.org/10.11648/j.eco.20150402.13
DO  - 10.11648/j.eco.20150402.13
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 34
EP  - 40
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20150402.13
AB  - Using Granger-causality approach, this study was intended to establish the relationship between exchange rate and inflation measured by CPI in South Sudan using time series monthly data for the period August 2011 to November 2014. The study reveals that there exists a unidirectional causality from exchange rate to CPI without feedback. This means depreciation of South Sudanese currency is detrimental to the economy of South Sudan. Although CPI failed to cause changes in exchange rate, there is no way to conclude with greater confidence that the results are true. The effect of the pressure of an increase in price level on exchange rate could have been from the response of monetary authorities in bridging the gap between the price level and the purchasing power of people in the economy. In South Sudan, with no response from the monetary authorities to increase money supply, the effect of increase in prices on exchange rate has been suppressed and only manifests itself in terms of suffering encountered by the economic actors with consumers and mainly the low-income consumers hit hard.Given the results, there is a need for the authorities to manage the exchange rate and save the domestic currency from depreciation. In search of more information, the study recommends further research to be conducted with the aim of establishing the weaknesses and strengths of South Sudan Central Bank management in carrying out effective monetary policies in the country.
VL  - 4
IS  - 2
ER  -

Copy | Download