The Effects of Exchange Rate Volatility on South African Investments

Working paper 610
Author(s): 
Magdeline M. Maepa
Publication date: 
May, 2016
Classification-JEL: 

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. However, this short-run interaction were found to be small, thus, not significant enough to cause disruptions to the exchange rate and to the inflow of investments into the country. The long-run analysis found that a there was a long-run relationship between the exchange rate and different types of investments in South Africa. This long-run relationship was also found to be negative. This paper concluded that investments have a negative, long-run effect on the exchange rate, suggesting that a fall in the investments would cause an increase in the exchange rate in the long-run.

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