F31

Foreign Exchange

Order flow and rand/dollar exchange rate dynamics

This paper uses the microstructure approach for the South African foreign exchange market to determine the impact of order flow on the rand/US dollar exchange rate over the short and long term. A hybrid model which combines microeconomic and macroeconomic fundamental determinants of the exchange
rate has been adopted. The analysis uses monthly series from January 2004 to December 2016. We find that order flow explains movements in the exchange rate, both in the short and in the long term. The speed of adjustment from short-term deviations is relatively slow.

Real Exchange Rate Volatility and Employment Growth in South Africa: The Case of Manufacturing

This paper investigates the effect of exchange rate volatility on employment growth in South Africa, a country that is characterised by high rates of unemployment and relatively high exchange rate volatility. Employing the Autoregressive Distributed Lag (ARDL) cointegration method over the period 1995Q3 to 2015Q2 and using a variety of specifications, results show that real exchange rate volatility has a significant contractionary effect on manufacturing employment growth.

Disentangling the exchange rate risk, sectoral export flows and financial development nexus

This paper examines the differential responses of various emerging market export sectors to exchange rate risk. This paper finds origin in initial theoretical posits of Ethier (1973) and Clark (1973) which both contend that exchange rate risk has a negative impact on the export flows of international trade participants who are assumed to be inherently risk averse.

Nonlinearities in Financial Development–Economic Growth Nexus: Evidence from sub–Saharan Africa (SSA)

The impact of financial development on economic growth has received much attention in recent literature. However, there are potential discontinuities mediating finance–growth nexus that existing empirical studies have not rigorously examined. This study investigates whether the impact of finance on economic growth is conditioned on the initial levels of countries’ income per capita, human capital and financial development for 29 sub–Saharan Africa countries over the period 1980–2014 using a sample splitting and threshold estimation technique.

Equilibrium Exchange Rates and Misalignments: The Case of Homogenous Emerging Market Economies

We compute the exchange rate misalignment for a set of emerging economies between 1980 and 2013 using the behavioural equilibrium exchange rate definition. The real equilibrium exchange rate is constructed using a parsimonious model and estimators that are robust to cross-sectional independence and small sample size bias. We find that these countries tend to intervene to avoid real appreciation of their currencies following a rise in relative productivity, casting doubt on the Balassa-Samuelson effect.

Modelling exchange rate volatility dynamics: Empirical evidence from South Africa

In this paper, we extend the literature on modelling exchange rate volatility in South Africa by estimating a range of models, including some that attempt to account for structural breaks and long memory. We examine the key nominal exchange rates of the South African rand and replicate common findings in the literature; particularly that volatility is ‘persistent’. We investigate whether this ‘persistence’ is due to structural breaks or long memory, and the extent of asymmetric responses of the rand to ‘good news’ and ‘bad news’.

The impact of Monetary Policy Announcements and Political Events on the Exchange Rate: The Case of South Africa

Since 2000 the South African rand has been among the most volatile emerging market currencies, occasionally experiencing sharp depreciations. These sharp fluctuations in the value of the currency cannot be adequately explained by models of flow-supply and flow-demand of currency or by movements in fundamental factors, yet few studies have employed an asset pricing approach to explain exchange rate variability in emerging markets.

Do monetary policy announcements affect foreign exchange returns and volatility? Some evidence from high-frequency intra-day South African data.

This paper examines the temporal effect of domestic monetary policy surprises on both the levels and volatility of the South African rand/United States dollar exchange rate. The analysis in this ‘event study’ proceeds using intra-day minute-by-minute exchange rate data, repo rate data from the South African Reserve Bank’s scheduled monetary policy announcements, and Bloomberg market consensus repo rate forecasts.

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.

The Effects of Exchange Rate Volatility on South African Investments

This paper analysed the short- and long-run interactions between the exchange rate and different types of investments in South Africa from 1970 to 2014. The Vector Autoregressive model (VAR), a multivariate Johansen co-integration approach and Granger causality test were conducted to analyse the interactions between the exchange rate and different types of investments. The short-run analysis found that there was a short-run relationship between the exchange rate and different types of investments in South Africa.

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