The Impact of Exchange Rate Uncertainty on Exports in South Africa

Goodness C. Aye (), Rangan Gupta, Prudence S. Moyo and Nehrunaman Pillay
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Goodness C. Aye: Department of Economics, University of Pretoria, 0002, Pretoria, South Africa
Prudence S. Moyo: Department of Economics, University of Pretoria, 0002, Pretoria, South Africa
Nehrunaman Pillay: Department of Economics, University of Pretoria, 0002, Pretoria, South Africa

Journal of International Commerce, Economics and Policy (JICEP), 2015, vol. 06, issue 01, 1-14

Abstract: This paper examines the impact of real effective exchange rate uncertainty (REER) on aggregate exports of South Africa for the period 1986Q4–2013Q2. Using a bivariate framework where the structural vector autoregression (VAR) is modified to accommodate bivariate GARCH-in-Mean (GARCH-M) errors, we find that exchange rate uncertainty has a significant and negative effect on exports. Comparing the response of exports to a shock in exchange rate from a model that includes the REER uncertainty with results from a model that restricts the coefficient of the exchange rate uncertainty to zero, we find that the response is more pronounced in the former model. Furthermore, real exports respond asymmetrically to negative and positive shocks of REER of the same size.

Keywords: Exchange rate uncertainty; real effective exchange rate; exports; bivariate GARCH-in-Mean VAR; C32; E32; F1 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (13)

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DOI: 10.1142/S1793993315500040

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