The Global Transmission of U.S. Monetary Policy

This paper studies the transmission of US monetary shocks across the globe by employing a high-frequency identification of policy shocks and large VAR techniques, in conjunction with a large macro- financial dataset of global and national indicators covering both advanced and emerging economies. Our identification controls for the information effects of monetary policy and allows […]

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

Our empirical study addresses the question: How does the South African rand respond to scheduled domestic repo rate announcements – surprises and expected changes? Analysis results suggest that monetary policy news is an important determinant of the exchange rate. An unexpected repo rate change, or no change when the market anticipates one, leads to statistically […]

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

The debate about the equilibrium level of the South African rand and the factors driving the currency is ongoing, with a concomitant lack of consensus on the most appropriate level of the exchange rate. The New Growth Path Framework (2011), which provided government’s blueprint for economic growth and job creation, calls for a more competitive […]

Comparing Linear and Non-linear Benchmarks of Exchange Rate Forecasting

Throughout the past 3 decades, the random walk model served as exchange rate forecasting benchmark to verify that a model is able to outperform a random process. However, its application as forecasting benchmark is contradictory. Rather than serving as a benchmark that explains exchange rate behaviour, it serves as a benchmark of what we do […]

Volatility Spillovers across South African Asset Classes during Domestic and Foreign Financial Crises

This paper studies domestic volatility transmission in an emerging economy. Daily volatility spillover indices, relating to South African (SA) currencies, bonds and equities, are estimated using variance decompositions from a generalised vector autoregressive (GVAR) model (Pesaran and Shin 1998). The results suggest substantial time-variation in volatility linkages between October 1996 and June 2010. Typically, large […]

Testing for Purchasing Power Parity and Uncovered Interest parity in the Presence of Monetary and Exchange Rate Regime Shifts

Occasional Paper 01 Testing for purchasing power parity (PPP) and uncovered interest parity (UIP) has been the focus of many empirically oriented studies. Whilst these simple economic theories of exchange rate and interest rate determination are theoretically attractive, the empirical support for these equilibrium conditions is at best mixed. Many potential reasons have been cited […]