Stock Prices and the Exchange Rate in a Monetary Model: A ARDL Bounds Testing Approach Using South African Data

Smile Dube ()
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Smile Dube: California State University

The African Finance Journal, 2008, vol. 10, issue 1, 1-27

Abstract: 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 I(I) or I(0). 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.

Keywords: Exchange Rate; Stock Price; ARDL; Cointegration; Bounds Testing; Flexible Price Model (FPM); Sticky Price Model (SPM) (search for similar items in EconPapers)
JEL-codes: E44 F30 F31 F41 F47 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:afj:journl:v:10:y:2008:i:1:p:1-27

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