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Stock Prices and the Exchange Rate in a Monetary Model: A ARDL Bounds Testing Approach Using South African Data


  • Smile Dube

    () (California State University)


We investigate the empirical validity of the monetary model of the exchange rate (Rand/Dollar=ZAR/$ ) using a technique (ARDL Bounds test) capable of testing for the existence of a long-run relationship regardless of whether the underlying time series are individually I(I) or I(0). Monetary fundamental variables (money supply, income, interest rate) are augmented by the stock market prices. We find evidence supporting the existence of a long-run relationship between the ZAR/$ exchange rate and fundamental variables, including stock prices. With the exception of relative money supplies where, we offer various explanations, all variables have the correct sign and plausible magnitudes.

Suggested Citation

  • Smile Dube, 2008. "Stock Prices and the Exchange Rate in a Monetary Model: A ARDL Bounds Testing Approach Using South African Data," The African Finance Journal, Africagrowth Institute, vol. 10(1), pages 1-27.
  • Handle: RePEc:afj:journl:v:10:y:2008:i:1:p:1-27

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    Cited by:

    1. Riané de Bruyn & Rangan Gupta & Lardo Stander, 2013. "Testing the Monetary Model for Exchange Rate Determination in South Africa: Evidence from 101 Years of Data," Contemporary Economics, University of Finance and Management in Warsaw, vol. 7(1), March.

    More about this item


    Exchange Rate; Stock Price; ARDL; Cointegration; Bounds Testing; Flexible Price Model (FPM); Sticky Price Model (SPM);

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General


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