Reflections on the South African rand crisis of 1996 and policy consequences
AbstractAfter South Africa`s democratic elections in 1994, large capital inflows were induced by the cessation of trade and financial sanctions, improved creditworthiness and a liberalised capital account for foreigners. The flows were managed in a classic trade-off between currency stability, and raised interest rates to counter inflation resulting from a credit boom and partially sterilised intervention. In early 1996, the currency suffered a speculative attack. Using a theoretical model of currency crises, we present some empirical results suggesting the importance of economic fundamentals and policy credibility as determinants of investors` devaluation expectations prior to the crisis. Poor growth associated with subsequent protracted currency volatility and high interest rates argues for a range of complementary policies to manage inflows in South Africa. These include reserve requirements on certain inflows, prudent further liberalisation of domestic exchange controls, improved private and government savings policies, a medium-term public debt framework and closer monitoring of risk management by banking and other financial institutions.
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 Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/1999-13.
Date of creation: 01 May 1999
Date of revision:
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.:
- Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1996.
"Financial Crises in Emerging Markets: The Lessons from 1995,"
NBER Working Papers
5576, National Bureau of Economic Research, Inc.
- Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
- Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Harvard Institute of Economic Research Working Papers 1759, Harvard - Institute of Economic Research.
- Obstfeld, Maurice, 1996.
"Models of currency crises with self-fulfilling features,"
European Economic Review,
Elsevier, vol. 40(3-5), pages 1037-1047, April.
- Maurice Obstfeld, 1997. "Models of Currency Crises with Self-Fulfilling Features," NBER Working Papers 5285, National Bureau of Economic Research, Inc.
- Obstfeld, Maurice, 1996. "Models of Currency Crises with Self-fulfilling Features," CEPR Discussion Papers 1315, C.E.P.R. Discussion Papers.
- Agenor, Pierre-Richard & Masson, Paul R, 1999. "Credibility, Reputation, and the Mexican Peso Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 70-84, February.
- Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
- Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993.
"Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors,"
IMF Staff Papers,
Palgrave Macmillan, vol. 40(1), pages 108-151, March.
- Leonardo Leiderman & Carmen Reinhart & Guillermo Calvo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Working Papers 92/62, International Monetary Fund.
- Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
- Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
- Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
- Masson, Paul R, 1995. "Gaining and Losing ERM Credibility: The Case of the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(430), pages 571-82, May.
- Ozkan, F Gulcin & Sutherland, Alan, 1995. "Policy Measures to Avoid a Currency Crisis," Economic Journal, Royal Economic Society, vol. 105(429), pages 510-19, March.
- Adam, Christopher, 1995. "Fiscal adjustment, financial liberalization, and the dynamics of inflation: Some evidence from Zambia," World Development, Elsevier, vol. 23(5), pages 735-750, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise).
If references are entirely missing, you can add them using this form.