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.
South Africa’s export performance has been disappointing, and this is likely related to weak growth outcomes. We investigate the effect of the exchange rate on these outcomes, through two possible channels: its level and its volatility. We find little evidence in the literature or in our own tests to suggest volatility has been an important factor. The level of the currency appears to be more important, with currency undervaluation apparently favouring growth and exports. This may justify a policy of asymmetric reserve accumulation.
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.
Increased globalisation, coupled with rising domestic competition, has led a growing number of firms to search beyond their traditional domestic markets for business opportunities in recent years. As a result, export-led economic growth has gained renewed attention amongst policy makers, particularly amongst those in industrialising nations, or so-called efficiency-driven economies.
There is a theoretical case for real exchange rates to be stationary, but conventional unit root tests generally find nonstationarity in most economic data expressed in nominal terms; exchange rates in particular. Perron (1989) questioned the latter interpretation on the basis that the presence of a unit root may be a manifestation of not allowing for structural change — a finding reaffirmed later by Zivot and Andrews (1992) and Clemente et al (1998) when single and double sudden and gradual endogenous breakpoints are accounted for in unit root tests.