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Commodity Prices and Exchange Rate Volatility

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Author Info

  • Elena Dumitrescu
  • Rabah Arezki
  • Andreas Freytag
  • Marc Quintyn

Abstract

We examine the relationship between South African Rand and gold price volatility using monthly data for the period 1980-2010. Our main findings is that prior to capital account liberalization the causality runs from South African Rand to gold price volatility but the causality runs the other way around for the post-liberalization period. These findings suggest that gold price volatility plays a key role in explaining both the excessive exchange rate volatility and current disproportionate share of speculative (short-run) inflows that South Africa has been coping with since the opening up of its capital account.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/168.

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Length: 19
Date of creation: 01 Jun 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/168

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Related research

Keywords: Commodities; Capital account liberalization; Commodity price fluctuations; Exchange rates; Gold prices; exchange rate; reer; real exchange rate; exchange rate volatility; exchange rate regimes; real exchange rate volatility; commodity exporting countries; exporting countries; real effective exchange rate; capital flows; capital accounts; nominal exchange rate; exchange controls; commodity exports; effective exchange rate; flexible exchange rate; export commodity; real exchange rates; trade flows; exchange control regulations; exchange rate policy; exchange control; fixed exchange rates; classification of exchange rate; financial crises; exchange rate variation; export commodity prices; exchange rate fluctuations;

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References

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  1. Aghion, Philippe & Bacchetta, Philippe & Ranciere, Romain & Rogoff, Kenneth S., 2009. "Exchange Rate Volatility and Productivity Growth: The Role of Financial Development," Scholarly Articles 12490419, Harvard University Department of Economics.
  2. Yu-Chin Chen & Kenneth Rogoff & Barbara Rossi, 2008. "Can Exchange Rates Forecast Commodity Prices?," NBER Working Papers 13901, National Bureau of Economic Research, Inc.
  3. West, K.D. & Cho, D., 1993. "The Predictive Ability of Several Models of Exchange Rate Volatility," Working papers 9317, Wisconsin Madison - Social Systems.
  4. 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.
  5. Henry, Peter B., 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1974, Stanford University, Graduate School of Business.
  6. Smith, C. E., 1999. "Exchange rate variation, commodity price variation and the implications for international trade," Journal of International Money and Finance, Elsevier, vol. 18(3), pages 471-491.
  7. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers 07-004, Stanford Institute for Economic Policy Research.
  8. Aghion, Philippe & Bacchetta, Philippe & Rancière, Romain & Rogoff, Kenneth, 2006. "Exchange Rate Volatility and Productivity Growth: The Role of Financial Development," CEPR Discussion Papers 5629, C.E.P.R. Discussion Papers.
  9. Paul Cashin & Luis Felipe Céspedes & Ratna Sahay, 2003. "Commodity Currencies and the Real Exchange Rate," Working Papers Central Bank of Chile 236, Central Bank of Chile.
  10. Gilbert, Christopher L, 1989. "The Impact of Exchange Rates and Developing Country Debt on Commodity Prices," Economic Journal, Royal Economic Society, vol. 99(397), pages 773-84, September.
  11. Chen, Yu-chin & Rogoff, Kenneth, 2003. "Commodity currencies," Journal of International Economics, Elsevier, vol. 60(1), pages 133-160, May.
  12. Faisal Ahmed & Rabah Arezki & Norbert Funke, 2007. "The composition of capital flows to South Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(2), pages 275-294.
  13. Bui, Nhuong & Pippenger, John, 1990. "Commodity prices, exchange rates and their relative volatility," Journal of International Money and Finance, Elsevier, vol. 9(1), pages 3-20, March.
  14. Peter Draper & Andreas Freytag & Sebastian Voll, 2011. "Global Financial Crisis, Protectionism and Current Account Deficit," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 12(2), pages 129-152, April.
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Citations

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Cited by:
  1. Bouoiyour, Jamal & Selmi, Refk, 2013. "Exchange rate uncertainty and export performance: what meta-analysis reveals?," MPRA Paper 49249, University Library of Munich, Germany, revised Aug 2013.
  2. Duncan, Andrew S. & Kabundi, Alain, 2013. "Domestic and foreign sources of volatility spillover to South African asset classes," Economic Modelling, Elsevier, vol. 31(C), pages 566-573.

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