De Wet, W.A. (Walter Albert)2008-09-292008-09-292002-03De Wet, W 2002, 'Coping with inflation and exchange rate shocks in the South African economy', The South African Journal of Economics, vol. 70, no. 1, pp. 78-94. [http://www.blackwellpublishing.com/journal.asp?ref=0038-2280&site=1]0038-228010.1111/j.1813-6982.2002.tb00039.xhttp://hdl.handle.net/2263/7381Over the past ten years South Africa has moved to an increasingly open economy, characterised by a (relatively) low inflation and large and unpredictable movements in the prices of financial assets. One of these asset prices is the value of the South African currency. This volatility in the exchange rate has a direct impact on inflation. Using the interest rate as operational target, a central bank might ignore or underestimate the exchange rate transmission mechanism through which the economy is influenced. This paper proposes a Monetary Conditions Index for South Africa that can be used as a policy rule or simply as an important information variable in conducting monetary policy under an inflation-targeting regime with a volatile exchange rate.enBlackwell. The definitive version is available at www.blackwell-synergy.comSouth African economyMonetary policySouth AfricaMonetary Conditions Index (MCI)Interest rateInflationExchange rateMonetary policy -- South AfricaInflation (Finance) -- South AfricaForeign exchange rates -- South AfricaPostprint Article