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This empirical study for South Africa indicates that there exists a stable money demand type of relationship among domestic prices, broad money, real income, and interest rates, as well as a long-run relationship among domestic prices, foreign prices, and the nominal exchange rate. In the short run, shocks to the nominal exchange rate affect domestic prices but have virtually no impact on real output, while shocks to broad money have a temporary impact on real output before becoming inflationary. Both types of shocks seem to trigger a monetary policy response, since the short-term interest rate adjusts quickly.

Foreign Exchange --- Money and Monetary Policy --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- State Space Models --- Price Level --- Inflation --- Deflation --- Demand for Money --- Open Economy Macroeconomics --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Currency --- Foreign exchange --- Monetary economics --- Demand for money --- Exchange rates --- Purchasing power parity --- Monetary base --- Nominal effective exchange rate --- Money --- Money supply --- South Africa