On the Rand: Determinants of the South African Exchange Rate

Jeffrey Frankel

No 139, CID Working Papers from Center for International Development at Harvard University

Abstract: This paper is an econometric investigation of the determinants of the real value of the South African rand over the period 1984-2006. The results show a relatively good fit. As always with exchange rate equations, there is substantial weight on the lagged exchange rate, which can be attributed to a momentum component. Nevertheless, economic fundamentals are significant and important. This is especially true of an index of the real prices of South African mineral commodities, which even drives out real income as a significant determinant. An implication is that the 2003-2006 real appreciation of the rand can be attributed to Dutch Disease. In other respects, the rand behaves like currencies of industrialized countries with well-developed financial markets. In particular, high South African interest rates raise international demand for the rand and lead to real appreciation, once one also controls for a forward-looking measure of expected inflation and a measure of default risk or country risk. It is in the latter respects, in particular, that the paper purports to improve on earlier studies of the rand.

Keywords: South Africa; Rand; Commodity Currency; Dutch Disease; Mineral Prices; Country Risk (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2007-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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https://www.hks.harvard.edu/sites/default/files/ce ... rking-papers/139.pdf (application/pdf)

Related works:
Journal Article: ON THE RAND: DETERMINANTS OF THE SOUTH AFRICAN EXCHANGE RATE (2007)
Working Paper: On the Rand: Determinants of the South African Exchange Rate (2007)
Working Paper: On the Rand: Determinants of the South African Exchange Rate (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cid:wpfacu:139

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