Investigating the Impact of Consumer Confidence and Exchange Rates on Purchasing Decisions in South Africa

Purpose: The study investigates the long-term and short-term impacts of consumer confidence and the exchange rate on consumer purchasing decisions in South Africa over the period 2013 to 2023. Design/Methodology/Approach: In this study, a range of data analysis techniques and methodologies to examine the impact of consumer confidence and exchange rates on purchasing decisions in South Africa were utilized. Tests for unit roots are carried out to check for stationarity in time series data. These are the Augmented Dickey-Fuller (ADF) and Phillips Perron (PP) tests. Johansen's cointegration method was utilized to test if the variables included in the study were cointegrated. The vector error correction model (VECM) was estimated to determine the exogenous variables' short-term and long-term effects. Statistical diagnostics such as the Lagrange Multiplier (LM), Breusch-Pagan-Godfrey (BPG), and Jarque-Bera (JB) were also carried out to ensure that a robust and statistically sound model was obtained. Findings: The results demonstrate a long-term equilibrium relationship among consumer confidence, exchange rates, household income (as a control variable), and purchasing decisions. In the short term, consumer confidence and household income emerge as statistically significant drivers of purchasing behavior, while the exchange rate shows a weaker, yet negative, impact. Granger causality tests further highlight the dynamic interplay between these variables, indicating unidirectional causality from consumer confidence to purchasing decisions and bidirectional causality between household income and purchasing decisions. Practical Implications: The study suggests that clear and open communication from policymakers and government officials to customers can considerably increase consumer confidence. Regular updates on economic realities, fiscal measures, and future economic plans can help minimise uncertainty and boost consumer confidence. Originality/Value: The South African Reserve Bank (SARB) and policymakers can determine suitable interest rates and manage currency exchange rates to encourage or stabilise consumer spending by having a better understanding of how consumer confidence and exchange rates impact purchase decisions.