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The Real Equilibrium South African Rand/US Dollar Exchange Rate: A Comparison of Alternative Measures

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  • Andrea Saayman

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    Abstract

    This article indicates how different measures of the real exchange rate, i.e., the exchange rate adapted for cost inflation, price inflation and labour costs, influence the equilibrium view and misalignment of the South African rand/US dollar exchange rate. The approach followed is based on the behavioural equilibrium exchange rate approach by Clark and MacDonald ( 1998 ), where the exchange rate is influenced by a number of fundamental and transitory factors. The real equilibrium exchange is estimated by using a single equation regression and a number of key explanatory variables. To determine the long-run relationship a Vector Error Correction Mechanism is used. Copyright International Atlantic Economic Society 2007

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    File URL: http://hdl.handle.net/10.1007/s11294-006-9075-6
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    Bibliographic Info

    Article provided by Springer in its journal International Advances in Economic Research.

    Volume (Year): 13 (2007)
    Issue (Month): 2 (May)
    Pages: 183-199

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    Handle: RePEc:kap:iaecre:v:13:y:2007:i:2:p:183-199

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    Web page: http://www.springerlink.com/link.asp?id=112112

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    Keywords: equilibrium exchange rate; South Africa;

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    1. Janine Aron & Ibrahim Elbadawi & Brian Kahn, 1998. "Determinants of the real exchange rate in South Africa," CSAE Working Paper Series 1997-16, Centre for the Study of African Economies, University of Oxford.
    2. Ronald MacDonald & Luca Antonio Ricci, 2003. "Estimation of the Equilibrium Real Exchange Rate for South Africa," IMF Working Papers 03/44, International Monetary Fund.
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    4. Hughes Hallett, Andrew & Richter, Christian, 2004. "Estimating an equilibrium exchange rate for the dollar and other key currencies," Economic Modelling, Elsevier, vol. 21(6), pages 1117-1144, December.
    5. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals," IMF Working Papers 98/67, International Monetary Fund.
    6. Baffes, John & Elbadawi, Ibrahim A. & O'Connell, Stephen A., 1997. "Single-equation estimation of the equilibrium real exchange rate," Policy Research Working Paper Series 1800, The World Bank.
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    8. Peter B. Clark & Ronald MacDonald, 2000. "Filtering the Beer," IMF Working Papers 00/144, International Monetary Fund.
    9. Carmen Mar? Mart?ez, 2003. "The Structural Approach of a Natrex Model on Equilibrium Exchange Rates," UFAE and IAE Working Papers 588.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    10. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17.
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    12. Zhang, Zhichao, 2001. "Real Exchange Rate Misalignment in China: An Empirical Investigation," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 80-94, March.
    13. Paruolo, Paolo, 1996. "On the determination of integration indices in I(2) systems," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 313-356.
    14. Barrell, Ray & Wren-Lewis, Simon, 1989. "Fundamental Equilibrium Exchange Rates for the G7," CEPR Discussion Papers 323, C.E.P.R. Discussion Papers.
    15. Sylviane GUILLAUMONT JEANNENEY & Ping HUA, 2001. "The Balassa-Samuelson effect and inflation in the Chinese provinces," Working Papers 200106, CERDI.
    16. Ilan Goldfajn & Rodrigo O. ValdŽs, 1999. "The Aftermath Of Appreciations," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 229-262, February.
    17. Chou, W. L. & Shih, Y. C., 1998. "The Equilibrium Exchange Rate of the Chinese Renminbi," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 165-174, March.
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