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The South African Rand-USA Dollar Exchange Rates and the Terms of Trade

Author

Listed:
  • M. Thomas Paul

    (University of Botswana
    National Institute of Bank Management)

  • G. R. Motlaleng

    (University of Botswana)

Abstract

This empirical study for the Republic of South Africa (RSA) indicates that there exists a strong long term relation between the RSA’s nominal rand/dollar exchange rate and the terms of trade. The study employs cointegration and error-correction methods. The error-correction model (ECM) shows that there is a strong causality from the terms of trade to the nominal exchange rate. The causality from the nominal exchange rate to the terms of trade appears to be weak. The pass-through from the nominal exchange rate to import and export prices is reflected at the earliest. There is no evidence for ‘pricing to the market’.

Suggested Citation

  • M. Thomas Paul & G. R. Motlaleng, 2006. "The South African Rand-USA Dollar Exchange Rates and the Terms of Trade," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 4(2), pages 130-150, July.
    • Handle: RePEc:spr:jqecon:v:4:y:2006:i:2:d:10.1007_bf03546453
    DOI: 10.1007/BF03546453
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    References listed on IDEAS

    as
    1. Karfakis, Costas & Phipps, Anthony, 1999. "Modeling the Australian Dollar-US Dollar Exchange Rate Using Cointegration Techniques," Review of International Economics, Wiley Blackwell, vol. 7(2), pages 265-279, May.
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    3. Gruen, David W R & Wilkinson, Jenny, 1994. "Australia's Real Exchange Rate--Is It Explained by the Terms of Trade or by Real Interest Differentials?," The Economic Record, The Economic Society of Australia, vol. 70(209), pages 204-219, June.
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    More about this item

    Keywords

    Nominal exchange rate; terms of trade; cointegration and error-correction methods; pass-through; purchasing power parity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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