F41

Open Economy Macroeconomics

The behaviour of the real effective exchange rate of South Africa: is there a misalignment?

The paper uses Behavioural Equilibrium Exchange Rate methodology to estimate the equilibrium real effective exchange rate of the rand and to establish whether the observed exchange rate is misaligned with this level. The exchange rate’s misalignment behaviour is further explored using a regime switching method. Results endorse the existence of a co-integrating relationship between the exchange rate and terms of trade, external openness, capital flows and government expenditure.

Assessment of Monetary Union in SADC: Evidence from Cointegration and Panel Unit Root Tests

In this paper we investigate the likelihood of a proposed monetary union in the Southern African Development Community (SADC) being successful from the viewpoint of the Generalised Purchasing Power Parity (GPPP) hypothesis and optimum currency area (OCA) theory. We apply Johansen’s multivariate co-integration technique, panel unit root tests, Pedroni’s residual cointegration test and error correction based panel co-integration tests.

Should Central Banks of Small Open Economies Respond to Exchange Rate Fluctuations: The Case of South Africa

We estimate a New Keynesian small open economy DSGE model for South Africa, using Bayesian techniques. The model features imperfect competition, incomplete asset markets, partial exchange rate pass-through, and other commonly used nominal and real rigidities, such as sticky prices, price indexation and habit formation. We study the effects of various shocks on macroeconomic variables, and calculate the optimal Taylor rule coefficients using a loss function for the central bank.

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