n African Finance Journal - A monetary model of the South African rand




The behaviour of the South African rand is modeled using a monetary model of the exchange rate. The assumptions underlying the monetary approach are discussed in the context of the conditions prevailing in the South African economy. A cointegrating relationship involving the exchange rate, money stocks, industrial production and inflation rates is identified for the 1980M01-1998M11 period. In a later sub-period spanning 1988M01-1997M12, a sticky-price monetary model appears to fit the data better. The model also explains movements in the Rand during a sample encompassing the Russian financial crisis, as long as a dummy variable is included in the regression.


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