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Exchange Rate, House Price and Equity Shocks on the Current Account

In: Monetary Policy and the Economy in South Africa

Author

Listed:
  • Mthuli Ncube

    (African Development Bank Group)

  • Eliphas Ndou

    (Reserve Bank of South Africa)

Abstract

The drivers of trade balance in South Africa were analysed in Chapter 7 and evidence suggests both exchange rate and monetary policy shocks affect the trade balance through imports, rather than exports. The trade balance is a component of the current account. The South African current account balance has remained negative since 2003-Q2. This current account deterioration in the period 2003–10 has been more persistent compared with similar deteriorations in the period 1994–99. In addition, the deteriorations between 2003 and 2010 coincided with a massive appreciation in stock and house prices between 2004 and 2008. This is supported by trends in asset price movements in relation to the current account, as shown in Figure 8.1. Studies on international transmission have found strong linkages between asset prices across countries. In addition, Chapter 6 found that developments in US mortgage debt were positively transmitted to South African mortgage debt and that house prices were positively correlated.1 Moreover, Chapter 4 showed that house price appreciation leads to currency appreciation in South Africa, irrespective of the housing sector.

Suggested Citation

  • Mthuli Ncube & Eliphas Ndou, 2013. "Exchange Rate, House Price and Equity Shocks on the Current Account," Palgrave Macmillan Books, in: Monetary Policy and the Economy in South Africa, chapter 8, pages 139-156, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-33415-2_8
    DOI: 10.1057/9781137334152_8
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