The determinants of real exchange rate volatility in South Africa

Abstract

Increasing financial liberalisation since the collapse of the Bretton Woods system in the 1970s has rendered exchange rates volatile in both developed and developing countries. As a result, the causes and effects of exchange rate volatility have become of interest to both researchers and policymakers. This paper focuses on the causes of medium to long-run real exchange rate volatility for South Africa's currency (the rand). This kind of study is important because medium to long-run real exchange rate volatility raises the risks associated with investment in the tradable sector and is detrimental to long-term economic growth. For instance, there is evidence in South Africa of exchange rate volatility having significant effect on macroeconomic factors such as employment and trade (

Does Exchange Rate Volatility Affect Economic Growth in Nigeria?

“…Different statistical methods have been used in the literature to extract exchange-rate volatility. The present study used generalized autoregressive conditional heteroscedasticity (GARCH) and the moving standard deviation of exchange-rate times series to generate volatility, as widely documented in the literature (Khosa et al, 2015;Arize et al, 2000;Mpofu, 2016;Serenis & Tsounis, 2015;Musyoki et al, 2012). The following general expression is used:…”

The impacts of public expenditure innovations on real exchange rate volatility in South Africa

“…Compared to the currencies of other emerging economies, the rand is more volatile as there is a highly developed foreign exchange market and high participation of foreigners in local markets. The country's good integration into the global economy could also be a factor in the volatility of the rand relative to other emerging economy currencies (Aye et al 2015;Hassan 2016;Khomo 2018;Mpofu 2016). This volatility of the exchange rate may have an effect on macroeconomic stability.…”

The Determinants of Exchange-Rate Volatility

“…Literature found that productivity determines the exchangerate volatility, but still empirically it proved different results. Productivity did not significantly affect exchange-rate volatility [9], while other researchers proved that productivity positively and significantly influences exchange-rate volatility [7], [8], and other proved that productivity negatively and significantly affected Exchange-rate volatility [10]. Government expenditure determines the exchange-rate volatility, but empirical results proved differently.…”

“…Empirical evidence still provides different evidence on money supply. Some significantly determines the exchange-rate volatility [28], and [10], however, some proved negative and not significantly determine the exchange-rate volatility [9], and [31]. Other factors according to the literature that affect exchange-rate volatility include: Interest rates, and exchange-rate regimes that positively and significantly affect the exchange-rate volatility [9], [7], [28].…”