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Nominal and Real Exchange Rate Models in South Africa: How Robust Are They?

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Listed author(s):
  • Balázs Égert

Abstract

This paper addresses difficulties in modelling exchange rates in South Africa. Real exchange rate models of earlier research seem to be sensitive to the sample period considered, alternative variable definition, data frequency and estimation methods. Alternative exchange rate models proposed in this paper including the stock-flow approach and variants of the monetary model are not fully robust to data frequency and alternative estimation periods, either. Nevertheless, adding openness to the stock-flow approach and augmenting the monetary model with share prices and the country risk premium improves significantly the fit of the models around the large (nominal and real) depreciation episodes of 2002 and 2008. Interestingly, real commodity prices do not help explain the large depreciations. While these models do a reasonably good job in-sample, their out-of-sample forecasting properties remain poor.

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File URL: http://economix.fr/pdf/dt/2012/WP_EcoX_2012-18.pdf
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Paper provided by University of Paris West - Nanterre la Defense, EconomiX in its series EconomiX Working Papers with number 2012-18.

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Length: 22 pages
Date of creation: 2012
Handle: RePEc:drm:wpaper:2012-18
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Keywords: exchange rate; real exchange rate; nominal exchange rate; commodity; Balassa-Samuelson; productivity; monetary model; stock-flow approach; openness; country risk;

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Find related papers by JEL classification:
  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
  • F31 - International Economics - - International Finance - - - Foreign Exchange
  • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
  • P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects

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Cited by:

  1. Mehmet Balcilar & Rangan Gupta & Clement Kyei & Mark E. Wohar, 2016. "Does Economic Policy Uncertainty Predict Exchange Rate Returns and Volatility? Evidence from a Nonparametric Causality-in-Quantiles Test," Open Economies Review, Springer, vol. 27(2), pages 229-250, April.
  2. Hyeyoen Kim & Doojin Ryu, 2013. "Forecasting Exchange Rate from Combination Taylor Rule Fundamental," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 49(S4), pages 81-92, September.

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