Nominal and Real Exchange Rate Models in South Africa: How Robust Are They?
AbstractThis paper addresses difficulties in modelling exchange rates in South Africa. Real exchange rate models of earlier research seem to be sensitive to the sample period considered, alternative variable definition, data frequency and estimation methods. Alternative exchange rate models proposed in this paper including the stock-flow approach and variants of the monetary model are not fully robust to data frequency and alternative estimation periods, either. Nevertheless, adding openness to the stock-flow approach and augmenting the monetary model with share prices and the country risk premium improves significantly the fit of the models around the large (nominal and real) depreciation episodes of 2002 and 2008. Interestingly, real commodity prices do not help explain the large depreciations. While these models do a reasonably good job in-sample, their out-of-sample forecasting properties remain poor.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2012-18.
Length: 22 pages
Date of creation: 2012
Date of revision:
exchange rate; real exchange rate; nominal exchange rate; commodity; Balassa-Samuelson; productivity; monetary model; stock-flow approach; openness; country risk;
Other versions of this item:
- Balazs Egert, 2012. "Nominal and Real Exchange Rate Models in South Africa: How Robust are they?," CESifo Working Paper Series 3853, CESifo Group Munich.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- F31 - International Economics - - International Finance - - - Foreign Exchange
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-10 (All new papers)
- NEP-CBA-2012-04-10 (Central Banking)
- NEP-FOR-2012-04-10 (Forecasting)
- NEP-MAC-2012-04-10 (Macroeconomics)
- NEP-MON-2012-04-10 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- PÃ¤r Ã–sterholm & Erik Hjalmarsson, 2007.
"Testing for Cointegration Using the Johansen Methodology When Variables Are Near-Integrated,"
IMF Working Papers
07/141, International Monetary Fund.
- Erik Hjalmarsson & Par Osterholm, 2007. "Testing for cointegration using the Johansen methodology when variables are near-integrated," International Finance Discussion Papers 915, Board of Governors of the Federal Reserve System (U.S.).
- Hamid Faruqee, 1994. "Long-Run Determinants of the Real Exchange Rate," IMF Working Papers 94/90, International Monetary Fund.
- Mtonga, Elvis, 2006. "The real exchange rate of the rand and competitiveness of South Africa's trade," MPRA Paper 1192, University Library of Munich, Germany.
- Hamid Faruqee, 1995. "Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 80-107, March.
- Jeffrey Frankel, 2007.
"On The Rand: Determinants Of The South African Exchange Rate,"
South African Journal of Economics,
Economic Society of South Africa, vol. 75(3), pages 425-441, 09.
- Jeffrey Frankel, 2007. "On the Rand: Determinants of the South African Exchange Rate," NBER Working Papers 13050, National Bureau of Economic Research, Inc.
- Frankel, Jeffrey, 2007. "On the Rand: Determinants of the South African Exchange Rate," Working Paper Series rwp07-015, Harvard University, John F. Kennedy School of Government.
- Stock, James H & Watson, Mark W, 1993.
"A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems,"
Econometric Society, vol. 61(4), pages 783-820, July.
- James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
- Tom Doan, . "SWDOLS: RATS procedure to estimate cointegrating vectors using dynamic OLS," Statistical Software Components RTS00207, Boston College Department of Economics.
- Odedokun, M. O., 1997. "The monetary approach to analysing floating exchange rate behaviour in developing countries: Evidence from sub-Saharan African countries, 1986-1992," Journal of Development Economics, Elsevier, vol. 52(2), pages 463-481, April.
- Jesus Crespo-Cuaresma & Jarko Fidrmuc & Ronald MacDonald, 2005.
"The monetary approach to exchange rates in the CEECs,"
The Economics of Transition,
The European Bank for Reconstruction and Development, vol. 13(2), pages 395-416, 04.
- Crespo-Cuaresma, Jesús & Fidrmuc, Jarko & McDonald, Ronald, 2003. "The monetary approach to exchange rates in the CEECs," BOFIT Discussion Papers 14/2003, Bank of Finland, Institute for Economies in Transition.
- Jesús Crespo-Cuaresma & Jarko Fidrmuc & Ronald McDonald, 2004. "The monetary approach to exchange rates in the CEECs," Macroeconomics 0401013, EconWPA.
- Michel Aglietta & Camille Baulant & Virginie Coudert, 1997. "Why the Euro will be Strong: an Approach Based on Equilibrium Exchange Rates," Working Papers 1997-18, CEPII research center.
- Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992.
"The Power of Cointegration Tests,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
- Ronald Macdonald & Luca Antonio Ricci, 2004.
"Estimation Of The Equilibrium Real Exchange Rate For South Africa,"
South African Journal of Economics,
Economic Society of South Africa, vol. 72(2), pages 282-304, 06.
- Ronald MacDonald & Luca Antonio Ricci, 2003. "Estimation of the Equilibrium Real Exchange Rate for South Africa," IMF Working Papers 03/44, International Monetary Fund.
- Egert, Balazs & Lommatzsch, Kirsten & Lahreche-Revil, Amina, 2006.
"Real exchange rates in small open OECD and transition economies: Comparing apples with oranges?,"
Journal of Banking & Finance,
Elsevier, vol. 30(12), pages 3393-3406, December.
- Balázs Égert & Kirsten Lommatzsch & Amina Lahrèche-Révil, 2007. "Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges?," William Davidson Institute Working Papers Series wp859, William Davidson Institute at the University of Michigan.
- Balazs Egert & Kirsten Lommatzsch & Amina Lahrèche-Révil, 2007. "Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges?," CESifo Working Paper Series 1928, CESifo Group Munich.
- Enrique Alberola & Susana Garcia-Cervero & Humberto López & Angel Ubide, 2005. "Quo vadis Euro?," International Finance 0507004, EconWPA.
- Chen, Yu-chin & Rogoff, Kenneth, 2003. "Commodity currencies," Journal of International Economics, Elsevier, vol. 60(1), pages 133-160, May.
- David Gruen & Tro Kortian, 1996. "Why Does the Australian Dollar Move so Closely with the Terms of Trade?," RBA Research Discussion Papers rdp9601, Reserve Bank of Australia.
- Jeannine Bailliu & Ali Dib & Takashi Kano & Lawrence Schembri, 2007. "Multilateral Adjustment and Exchange Rate Dynamics: The Case of Three Commodity Currencies," Working Papers 07-41, Bank of Canada.
- Susana Garcia Cervero & J. Humberto Lopez & Enrique Alberola Ila & Angel J. Ubide, 1999. "Global Equilibrium Exchange Rates," IMF Working Papers 99/175, International Monetary Fund.
- Cashin, Paul & Cespedes, Luis F. & Sahay, Ratna, 2004.
"Commodity currencies and the real exchange rate,"
Journal of Development Economics,
Elsevier, vol. 75(1), pages 239-268, October.
- Clements, Kenneth W. & Frenkel, Jacob A., 1980.
"Exchange rates, money, and relative prices: The dollar-pound in the 1920s,"
Journal of International Economics,
Elsevier, vol. 10(2), pages 249-262, May.
- Kenneth W. Clements & Jacob A. Frenkel, 1980. "Exchange Rates, Money and Relative Prices: The Dollar-Pound in the 1920's," NBER Working Papers 0429, National Bureau of Economic Research, Inc.
- Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
- Friedman, Milton, 1988. "Money and the Stock Market," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 221-45, April.
- Simon J. Broome & Morley, B., 2003. "Stock Prices and the Monetary Model of Exchange Rate: An Empirical Investigation," Economics, Finance and Accounting Department Working Paper Series n1321103.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valérie Mignon).
If references are entirely missing, you can add them using this form.