The Impact of Real Exchange Rate Volatility on South African Exports to the United States (U.S.): A Bounds Test Approach (original) (raw)
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In this paper we analyze the effects of the real exchange rate volatility on South Africa’s trade flows with the European Union over the period 1980 to 2009. Our study uses quarterly trade flows on South Africa’s exports and imports and utilizes the bounds testing approach to cointegration, and error-correction model. Our results reveal that imports depend positively on the levels of domestic economic activity and foreign exchange reserves but negatively on relative prices and exchange rate volatility. In addition, exports depend positively on the levels of foreign economic activity but negatively on relative prices and exchange rate volatility. Furthermore, the exchange volatility exerts mixed effects in the short-run and in the long-run.
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This paper investigates the determinants of exchange rate volatility in South Africa for the period 1986-2013 using the New Open Economy Macroeconomics model by Obstfeld & Rogo¤ (1996) and Hau (2002). The main focus of the paper is to test the hypothesis that economic openness decreases Rand (ZAR) volatility. This follows South Africa's liberalisation of its capital account in the mid-1990s and the mixed results in the literature on the relationship between exchange rate volatility and economic openness. Employing monthly time series data, GARCH models are estimated. The study …nds that switching to a ‡oating exchange rate regime has a signi…cant positive e¤ect on ZAR volatility. The results also indicate that trade openness signi…cantly reduces ZAR volatility only when bilateral exchange rates are used, but …nds the opposite when multilateral exchange rates are used. The study also …nds that volatility of output, commodity prices, money supply and foreign reserves signi…cantly in ‡uence ZAR volatility.