n African Finance Journal - Stock prices and the exchange rate in a monetary model : a ARDL Bounds testing approach using South African data




We investigate the empirical validity of the monetary model of the exchange rate (Rand / Dollar = ZAR / $ = ) using a technique (ARDL Bounds test) capable of testing for the existence of a long-run relationship regardless of whether the underlying time series are individually or . Monetary fundamental variables (money supply, income, interest rate) are augmented by the stock market prices. We find evidence supporting the existence of a long-run relationship between the ZAR / $ exchange rate and fundamental variables, including stock prices. With the exception of relative money supplies where, we offer various explanations, all variables have the correct sign and plausible magnitudes.


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