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Developing a forex network model to highlight risk transmission channels in a timely manner

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Have you ever wondered how sensitive the South African Rand is to shocks in other currencies? Instead of debating the relative volatility of the rand or the factors influencing this volatility, this podcast explores the nature of the rand’s volatility. Here, ERSA’s host speaks to Dr Rossouw van Jaarsveld, currently a consultant at the SARB, who with his team developed an empirical network model that uses bilateral spillover effects to contextualise abrupt exchange rate movements from the rand’s perspective. In discussing his latest research, Rossouw sheds light on how changes in currencies’ risk-return profiles transmit across economies and how much of the rand’s volatility is mirrored by global macroeconomic conditions rather than local factors. We unpack how the dataset necessary to measure this volatility was constructed, as well as how realized variance, skewness and kurtosis each play a nuanced role in understanding the nature of the volatility. From this research, we identify what role the rand plays among emerging market currencies, and why this may be the case. With many insights and learnings, Rossouw offers some good advice. For those of you interested in developing network models and understanding the nature of foreign currency movements, this podcast is not to be missed.

Credits

The beat used in this production, called ‘Resolutions’, is royalty free and can be found at freebeats.io.