oa South African Journal of Economic and Management Sciences - The economics of exchange rates: a South African model
|Article Title||The economics of exchange rates: a South African model|
|© Publisher:||University of Pretoria|
|Journal||South African Journal of Economic and Management Sciences|
|Affiliations||1 Department of Economics, University of Pretoria|
|Publication Date||Mar 2000|
|Pages||19 - 51|
|Keyword(s)||C 51, Dornbusch-type, Engle and Yoo cointegration procedure, Exchange rate, F 31, FEER, Fundamental equilibrium, JEL, Monetary model, Rand/dollar exchange rate, South Africa and Stickyprice|
ISI Social Science
This paper attempts to capture the determination of the South African exchange rate in a theoretically plausible model with reliable forecasting ability. A sticky-price, Dornbusch-type monetary model of the rand/dollar exchange rate is proposed. The three-step Engle and Yoo cointegration procedure is applied and the test results indicate that the nominal exchange rate is cointegrated with relative real output, the relative money supplies and the inflation differential. An error correction model is estimated and shocks are applied to each of the long-run variables. Some policy implications are derived from these sensitivity tests. Finally, a fundamental equilibrium exchange rate (FEER) for the rand/dollar rate is defined and the FEER values are estimated until the year 2000.
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