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Do the Exchange Rate Depreciation and Volatility Shocks Impact Money Demand in South Africa?

In: Achieving Price, Financial and Macro-Economic Stability in South Africa

Author

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  • Nombulelo Gumata

    (South African Reserve Bank)

  • Eliphas Ndou

    (South African Reserve Bank)

Abstract

This chapter investigates the extent to which the exchange rate deprecation and volatility shocks drive money demand in South Africa. Evidence indicates that the exchange rate depreciation reduces money demand, and this supports the prevalence of the currency substitution effect. Furthermore, the decline in money demand is accentuated by elevated exchange rate volatility. This evidence suggests that the exchange rate depreciation shocks and the accompanying elevated exchange rate volatility shocks matter for real money demand. Thus, both the exchange rate depreciation shocks and elevated exchange rate volatility shocks matter for real money demand. Hence, policymakers should consider the adverse effects of the exchange rate depreciation and volatility shocks on money demand. The information on money supply growth has implications for economic growth prospects and inflation dynamics.

Suggested Citation

  • Nombulelo Gumata & Eliphas Ndou, 2021. "Do the Exchange Rate Depreciation and Volatility Shocks Impact Money Demand in South Africa?," Springer Books, in: Achieving Price, Financial and Macro-Economic Stability in South Africa, chapter 0, pages 459-464, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-66340-7_30
    DOI: 10.1007/978-3-030-66340-7_30
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