On the Rand: Determinants of the South African Exchange Rate

Frankel, Jeffrey A.

doi:10.3386/w13050

Cited by 15 publications

(20 citation statements)

References 13 publications

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“…Interestingly, our point estimates for the interest-differential coefficient in the long-run equation for the real exchange rate are very similar to those obtained byFrankel (2007) in his study of the South African rand (his point estimates range from 0.019 to 0.022 for the pre-liberalization period).…”

supporting

confidence: 78%

Monetary Policy and Real Currency Appreciation: A BEER Model for the Mexican Peso

Ibarra

2011

International Economic Journal

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A notable feature of the Mexican economy since the late 1980s was the persistent real appreciation of the peso. The appreciation - a key development that helps to explain Mexico's slow rate of economic growth - took place despite changes in the exchange-rate regime, yet with an unchanging focus of monetary policy on gradually reducing the inflation rate. Thus, the frequent assumption that only real-side variables (as opposed to monetary ones) have a lasting or 'long-run' effect on the real exchange may not suit the recent Mexican case. The paper presents the results of an econometric study of exchange rate determination in Mexico for the period 1990Q1-2006Q4. The study is based on the so-called BEER (Behavioral Equilibrium Exchange Rate) model, which relies on Johansen's cointegration methodology and jointly considers real-side and monetary determinants. The estimation results - in the form of two- and three-equation cointegration models - show that, controlling for the influence of real-side determinants, the peso-dollar interest differential had a statistically and economically significant long-run effect on the peso's real exchange rate.Real currency appreciation, real exchange rate, monetary policy, Mexican peso, BEER model, Johansen's cointegration methodology,

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supporting

confidence: 78%

Monetary Policy and Real Currency Appreciation: A BEER Model for the Mexican Peso

Ibarra

2011

International Economic Journal

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“…For example, Cashin et al (2004) show that commodity prices influence the real exchange rate in commodity exporting countries through change in wages in the commodity sector. Frankel (2007) finds that mineral prices have effect on real exchange rate movements in South Africa. Koranchelian (2005) finds positive relation between oil price and exchange rate in Algeria.…”

Section: Review Of Literaturementioning

confidence: 96%

Macroeconomic shocks and fluctuations in African economies

Rasaki

Malikane

2015

Economic Systems

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“…The results are reported more completely in Frankel (2007) but the central tendencies across a variety of specifications are robust: the real commodity price index is significant with the hypothesized positive sign. Real GDP per capita is significant when included on its own, but when included alongside the real commodity price index (with which it is correlated) the latter drives out the former 9 .…”

Section: Why Is South Africa Running a Current Account Deficit Whementioning

confidence: 88%

“…What explains these swings? Frankel (2007) offers an econometric analysis of the determinants of the exchange rate. Ideally, this would help us form a judgment as to whether the value of the rand in 2007 is appropriate.…”

Section: Why Is South Africa Running a Current Account Deficit Whementioning

confidence: 99%

South Africa: Macroeconomic challenges after a decade of success¹

Frankel¹,

Smit²,

Sturzenegger³

2008

Economics of Transition

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More than halfway through the decade, the South African economy has done very well. This report asks whether such achievements provide grounds for complacency. In particular it discusses the current account challenge in light of the Accelerated and Shared Growth Initiative for South Africa (ASGI-SA) program. Our assessment is that a cautionary note on the need to reduce external imbalances is needed. We provide policy recommendations to minimize the negative impact of a possible sudden stop of capital inflows. On the consistency of ASGI-SA program, we note that, given South Africa's recent employment and productivity performance a large investment program would be required to deliver the desired growth Initiative-South Africa (ASGI-SA) proposal, external imbalances are poised to widen further. Furthermore, in the context of an increase in consumer debt ratios, consumers are exposed to a sudden increase in interest rates. What do these risks imply for policy decisions?Pursuing these motivations, we address several specific questions. First we ask about the sustainability of the current trends in the South African economy. What are the drivers of the current boom? Is this a demand-driven expansion with little potential for sustainability? Will growth be constrained by external factors? We find that the expansion is driven by a mild consumption boom (mostly durables) and an increase in investment. But the increase in investment has focused on the non-tradable sector, thus auguring future imbalances. When we use the BER's and the Treasury's macro model to simulate the future path of the economy, we find that without an exogenous improvement in the terms of trade, South Africa will show increasing external imbalances.Given the size of external imbalances, we discuss the possibility of a sudden stop to capital inflows, as in the late-1990s (a possibility that has become more topical with recent global financial market turmoil) and what implications such a sudden stop would have for the South African economy. Were it to materialize, how prepared is the South African economy to deal with it? A period of interest rate tightening in the large economies might precipitate a reversal of the booms in commodities and emerging markets that developed over the preceding five years. How vulnerable is the South African economy to such a sudden stop to capital inflows? We find that the South African economy is much better prepared than other emerging economies, but would still undergo an adjustment if a sudden stop did occur: output would stagnate, consumption would fall, and the government accounts would deteriorate. Thus, we explore a series of actions that may decrease this vulnerability.We then turn to an analysis of the consistency of the ASGI-SA program. The program is fairly comprehensive, including proposals in a wide range of areas. From a macro perspective the main question relates to the fact that ASGI-SA anticipates a sizable increase in public investment. But how will this increase in investment be financed, and what is ...

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On the Rand: Determinants of the South African Exchange Rate

Cited by 15 publications

References 13 publications

Monetary Policy and Real Currency Appreciation: A BEER Model for the Mexican Peso

Monetary Policy and Real Currency Appreciation: A BEER Model for the Mexican Peso

Macroeconomic shocks and fluctuations in African economies

South Africa: Macroeconomic challenges after a decade of success¹

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On the Rand: Determinants of the South African Exchange Rate

Cited by 15 publications

References 13 publications

Monetary Policy and Real Currency Appreciation: A BEER Model for the Mexican Peso

Monetary Policy and Real Currency Appreciation: A BEER Model for the Mexican Peso

Macroeconomic shocks and fluctuations in African economies

South Africa: Macroeconomic challenges after a decade of success1

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Product

Resources

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South Africa: Macroeconomic challenges after a decade of success¹