21 research outputs found
Oil prices and exchange rates dynamics in South Africa.
No full textMasters Degree. University of KwaZulu-Natal, Durban.The study examines the dynamics between oil prices and exchange rates in an oil-importing country to guide policymakers in their decision making. Furthermore, findings from this study seeks to decision makers to make informed and effective control measures. For this reason, this paper studies the effect of oil prices and oil price volatility on the rand-to-dollar exchange rate. It uses South African monthly data from 2000: M1 to 2023: M12, accessed from the Federal Reserve Bank of St Louis (FRED) and the World Bank. It employs the Structural Vector Autoregressive (SVAR) Model and further computes impulse responses and the forecast error variance decomposition (FEVD). The main findings of the study show that South African nominal exchange rates respond asymmetrically to changes in oil prices and that they tend to respond more to negative oil price shocks. The response of the South African nominal effective exchange rate to oil prices contradicts several author’s work. The results further show that oil price volatilities cause the South African rand to depreciate
The impact of exchange rate misalignments on economic growth of the South African Customs Union.
No full textMaster of Commerce in Economics. University of KwaZulu-Natal, Westville 2015.The dissertation examines the impact of exchange rate misalignments on the economic growth of five countries in the SACU region: South Africa, Lesotho, Namibia, Swaziland and Botswana, using annual data from 1995 to 2012. First and second generation unit root tests are used in order to take into account the existence of structural breaks and cross-sectional dependence. After determining the existence of a cointegration relationship using both Pedroni (2004) and Westerlund (2007) tests, exchange rate misalignments are computed as a deviation of exchange rates from their long-run determinants; estimated using the Pesaran et al.(1997; 1999) mean-group and pooled mean-group. We found that by using the mean-group estimator, the different currencies are overvalued as suggested by Asfaha and Huda (2002) and Saayman (2007), for both the South African and Botswanan currency. Focusing on the results from the mean group, as this estimator is efficient in the presence of cross-sectional dependence in the data, we assessed the impact of misalignment on economic growth using the system-GMM due to the existence of autocorrelation and endogeneity. We found that exchange rate misalignments are not significant in explaining economic growth, even when controlling for terms of trade and openness
Oil Price Shocks and Economic Activity: The Asymmetric Cointegration Approach in South Africa
No full textThis study examines the link between oil prices and economic activity proxied by gross domestic product in the context of South Africa. The study employs the asymmetric approach proposed by Schorderet (2004) and advanced by Lardic and Mignon (2008). Asymmetric cointegration is used because it is believed that increasing and decreasing oil prices do not have similar or equal impacts on economic activity. In this study we document evidence for an asymmetric response of economic activity to oil price shocks. Further, our findings suggest that negative oil price shocks are important relative to positive oil price shocks.</jats:p
The Movement of Exchange Rate and Expected Income: Case of South Africa
No full textMany studies have investigated the impact of expectations on the exchange rates. However, it remains a challenge linking the exchange rates to its fundamentals. This study seeks to determine the impact of expectations of future income on the exchange rates behaviour. In this study, we employ the Bayesian VAR method. The study finds that the expectations of income have effects on the exchange rate behaviour. Furthermore, the exchange rates behaviour is asymmetric
Investigating South Africa’s exposure to potential currency crises.
No full textMasters Degree. University of KwaZulu-Natal, Durban.This study investigates South Africa's potential exposure to currency crises, aiming to identify effective economic indicators for anticipating such crises. Using annual data from 1994 to 2020, a probit model analysis and the Market Turbulence Index (MTI) are employed to facilitate this investigation. The results suggest that none of the 10 variables identified in empirical literature have predictive power in the South African context. The insignificant findings can be attributed to data frequency restrictions, as annual data was used instead of daily, weekly, or monthly data
due to limited public access to monthly statistics. The study concludes that the modelling approach employed may not be helpful for policymakers and central banks in predicting currency crises in South Africa. However, the use of higher frequency data and additional variables, such as political instability, may improve the significance and predictability of currency crises. Despite the insignificant results, the study highlights the potential adoption of the MTI in identifying crisis thresholds. With higher frequency data and more influential variables, this study can contribute significantly to the literature, particularly in a country like South Africa with a volatile economic climate
The Monetary Model of Exchange Rate Determination for South Africa
No full textThe disconnect between the exchange rate and its macroeconomic fundamentals has been extensively discussed in the literature. It nonetheless continues to pose theoretical and empirical challenges in the literature. This study examines the relationship between the exchange rate and its fundamentals. This study used the monetary model of exchange rate determination developed in the 1970s. The study used the TAR to estimate the exchange change rate behaviour in response to variations in monetary variables. We found that the exchange rates respond to the interest rate differential, consistent with the predictions of the monetary model of exchange rate determination. Furthermore, in all the regimes, the sizes of coefficients are different, which shows that the exchange rate behaviour is non-linear (asymmetric). While the impact of the interest rate differential in regime 1 and 2 leads to exchange rates appreciating although in regime 2 the results are insignificant, this occurs when the exchange rates fluctuate below 0.87 percentage points. In regime 3, on average, a marginal increase in interest rate deferential leads to an exchange rate depreciation. In some instances, the exchange rates respond to the monetary variables’ changes in line with the predictions of the monetary theory of exchange rate determination. An increase in interest rates in some instances leads to an improvement in the value of the exchange rate. However, the conditions are not constant—they vary depending on the state of exchange rate fluctuation
The monetary model of exchange rate behaviour: the case of South Africa = Isifanekisomali esiphathelene nendlela yokuhwebelana kwamazwe: okucwaningwayo eNingizimu Afrika.
No full textDoctoral Degree. University of KwaZulu-Natal, Durban.The exchange rates behaviour has been a topic of interest in the macroeconomics literature. Despite the extensive body of the literature on the subject, the exchange rates movement remains controversial. In the previous 40 years, economists developed theories that intended to explain the behaviour of the floating exchange rates. However, the empirical results have not been consistent with the predictions of the theories. South Africa has also had challenges with its exchange rate behaviour since the beginning of World War I. Over the years, the monetary authorities tried various methods of managing the factors believed to influence the behaviour of the domestic exchange rates. The main problem of the domestic exchange rates has been constant depreciation. The domestic exchange rates continue to depreciate even to this day despite the efforts. This study focuses on the relationship of some monetary variables that are believed have effect on the behaviour of the exchange rates. The economic theory supports the link between monetary variables and the exchange rates behaviour. However, the relationship between domestic exchange rates fundamentals seems to diverge from what is expected. As noted, the literature fails to link the exchange rates with its fundamentals. In this study we use non-linear estimations to model the interaction between the macroeconomic fundamentals and the domestic exchange rates which are Markov Switching model, Bayesian VAR and Threshold Autoregressive model. Firstly, the study found that private information which is not observed might have more effect on the exchange rates behaviour than expectations of exchange rates. Secondly, we found that expectations of income have an impact on the domestic exchange rates in some occasions. While in other situations, the domestic exchange rates behaviour cannot be linked with the fundamentals. Lastly, the domestic exchange rates behaviour responds to interest rates differential, domestic debt and political uncertainty when the exchange rate fluctuation is relatively stable. When the domestic exchange rates are appreciating, only the interest rate differential can explain the domestic exchange rates behaviour. Furthermore, the domestic exchange rates response is asymmetric to effects of expectations.
Iqoqa.
Indlela yokuhwebelana kwamazwe isihloko esihlaba umxhwele emibhalweni ethinta ezomnotho wonkana. Ngaphandle nje kobuningi bemibhalo ngesifundo, umnyakazo wokuhwebelana kwamazwe uhlala uyimpambankwici. Eminyakeni engama-40 eyadlula, osomnotho basungula izinjulalwazi ezihlose ukuchaza indlela entantayo yokuhwebelana kwamazwe. Kepha, imiphumela ebambekayo ibilokhu iyinhlalanjalo nokuqagela kwezinjulalwazi. INingizimu Afrika ibenazo futhi izinselelo mayelana nendlela yokuhwebelana kwamazwe kusukela ukuqala kwempi yokuqala yomhlaba. Emva kweminyaka, iziphathimandla zezezimali zazama izindlela ezahlukene ukungamela izimbangela ngokukholelwa kumthelela wokuhwebelana kwezwe namazwe. Inkinga enkulu yezwe mayelana nokuhwebelana kwamazwe bekuba yilokhu kwehla kwezinganani lempahla okuqhubekayo. Ukuhwebelana kwezwe namazwe kuyaqhubeka nokwehlisa izinganani lempahla.
Kulolu cwaningo sisebenzise inqubo yokulinganisa ubudlelwane bezinto phakathi kwezomnotho wonkana oyisisekelo kanye nokuhwebelana kwezwe namazwe. Amasu okulinganisa asebenzisa okungenzeka ukuqagela izisusa zokusabalalisa okubili kube yinto eyodwa eyindlela yezwe yokuhwebelana namazwe. Ekuqaleni, isifanekiso sikaMarkov Switch esisetshenziswa ukunquma imiphumela yezilinganiso zendlela yokuhwebelana kwezwe namazwe. Sithole ukuthi indlela yokuhwebelana kwezwe namazwe iyagudluka ngenkathi ukuhwebelana kwamazwe okulindelekile kuguquka. Kube nje, sekusetshenziswa isifanekiso sikaBayesian Vector Autoregressive ukuhluza umthelela wokulindelekile mayelana nengeniso lakusasa eliphathelene nendlela yokuhwebelana kwamazwe. Ekugcineni, kwasetshenziswa isifanekiso iThreshold Autoregressive ukuthola indlela yokuhwebelana kwamazwe uma kusesifanekisweni sezezimali.
Okokuqala, ucwaningo lwathola ukuthi ulwazi lwangasese olungaqashelwe lungenzeka lube namandla mayelana nendlela yokuhwebelana kwamazwe. Okwesibili, kwatholakala ukuthi okwakulindelekile okuyingeniso kwaba nomthelela endleleni yokuhwebelana kwezwe ngezikhathi ezithile. Bese kuthi kwezinye izimo, indlela yokuhwebelana kwezwe ingeze yamataniswa nalokho okuyisisekelo. Okokugcina, indlela yokuhwebelana kwamazwe iphendula ngokwehlukana kwezilinganisonani zenzalo, isikweletu sezwe kanye nokungabiko kwesiqiniseko kwezombusazwe ngesikhathi ukuhwebelana kwamazwe kunokuntengantenga nokuzinza. Ukuqhubekela phambili, ukuphendula kokuhwebelana kwezwe kunezingxenye ezingaxhumani nalokho okulindelekile. mkhaya wezilinganiso zokushintshiselana kwaba nemiphumela engalingani nokulindelekile
The Exchange Rate Pass-Through: Evidence of South Africa
No full textUnderstanding the role of the exchange rate behaviour in domestic prices is crucial for monetary authorities in anticipating inflation. Over the last 28 years (1994 – 2022), the inflation rate in South Africa has increased, averaging at 5.7% per year. It is believed that some of the increase in the inflation rate is a result of trade, hence this study aims at identifying how much of the changes in the exchange rate is passed on to domestic inflation. This idea is of interest in a country like South Africa that had implemented inflation targeting. The study identifies two channels of the exchange rate pass-through (ERPT); direct and indirect. the direct involves the change in import prices that is associated with the change in the exchange rate. The indirect channel involves the change in consumer price index (CPI) and the producer price index (PPI) that is associated with a change in import prices. The study uses monthly data from 1994 – 2022 to identify the speed and the magnitude of the exchange rate pass-through to domestic prices in the short-run and the long-run. Using the vector autoregressive model (VAR) and the vector error correction model the results shows that the magnitude of the exchange rate pass-through to import prices is relatively higher than the exchange pass-through to the CPI and PPI and that import prices; CPI and PPI increases immediately after an increase in the exchange rate
Macroprudential and monetary policies in South Africa: complements or substitutes?
No full textThe article reports on the complementarity and substitutability of Macroprudential and Monetary policies in South Africa, based on the interactions of both Business and Financial cycles. To this end, a Dynamic Conditional Correlations and the Asymmetric Dynamic Conditional Correlations MGARCH models together with the Granger Causality model, the Artificial Neural Network VAR model, and the Structural VAR model, were adopted for the analyses of synchronization, causality, and the analysis of shocks to cycles, respectively. Empirical evidence obtained is such that, under conditions of financial and real economic stress in South Africa, there exists high synchronicity and bidirectional causality between CBCI and CFCI. Hence, Macroprudential and Monetary policies become complements, there exists interdependence between the two policies and actions of one policy contributes to the improvement of the other. However, under normal times there exist no synchronicity and a unidirectional causality relationship running from CBCI to CFCI, was observed. Under such conditions, Macroprudential and Monetary policies become substitutes, therefore, the two policies become independent of each other, hence, only one policy can achieve the desired outcome. Overall, a shock to one cycle is a major determinant of the fluctuations of the other cycle
Exchange Rates, Supply Chain Activity/Disruption Effects, and Exports
No full textIn the past, South African monetary policy aimed to protect the external value of the domestic currency (Rand); however, these efforts failed. Later, its monetary policy approach changed to allow the foreign exchange rate market to determine the exchange rates. In such a change, the South African Reserve Bank (SARB) aimed to stabilize the demand for the Rand in the foreign exchange market by providing information to stabilize market expectations and create favorable market conditions. However, South African policymakers have struggled with currency depreciation since the early 60s, increasing the uncertainty of South African exports. This study aims to examine the effect of currency depreciation on exports using the Threshold Autoregressive (TAR) model. Additionally, this study created and validated the supply chain activity/disruption index to capture the sea trade activity. The sample period for the analysis is 2009 to 2023. The study finds that currency depreciation does not improve trade between South Africa and its trading partners over time. Furthermore, the currency depreciation was found to be asymmetric to the effect of international trade across the different regimes. The supply chain activity index shows that the effect of supply chain activity/disruption on exports is regime-dependent. This implies that the effect on exports is dependent on the economic environment
