1887

n African Finance Journal - Nominal exchange rate volatility and business cycle : evidence from South Africa

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Abstract

This paper decomposes nominal exchange rate volatility into permanent and transitory components to study the impact of the short-run business cycle on the conditional volatility of daily exchange rates in South Africa over the period 1990 to 2001. It also examines exchange rate volatility spillovers across the South African currency markets. The results indicate that: (1) the short-run business cycle components have a significant impact on the daily exchange rates; (2) the permanent component of the exchange rate volatility is time-varying (persistent); (3) the permanent component dominates the transitory component as forecasting period is extended into the future; (4) there is evidence of reciprocal volatility spillovers among the exchange rate markets; (5) there is one common trend for the European currencies and a separate one for the U.S. dollar and the Japanese Yen; The results raise the issue of the presence of transitory components in exchange rate volatility and invites further research into the nature of their global volatility trends.

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/content/finj/5/2/EJC33804
2003-01-01
2016-12-04
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