Estimation of the Equilibrium Real Exchange Rate for South Africa

Ronald MacDonald and Luca Ricci

No 2003/044, IMF Working Papers from International Monetary Fund

Abstract: Based on the Johansen cointegration estimation methodology, much of the long-run behavior of the real effective exchange rate of South Africa can be explained by real interest rate differentials, GDP per capita (both relative to trading partners), real commodity prices, trade openness, the fiscal balance, and the extent of net foreign assets. On the basis of these fundamentals, the real exchange rate in early 2002 was found to be significantly more depreciated with respect to the estimated equilibrium level. The half-life of the deviation of the real exchange rate from the estimated equilibrium one was found to be somewhat more than two years.

Keywords: WP; exchange rate; price; commodity; trading partner; equilibrium real exchange rate; vis-à-vis trading-partner country; real interest rate differential; price equalization; equilibrium exchange rate; commodity exporter; productivity differential; explanatory variables; Real exchange rates; Real effective exchange rates; Real interest rates; Foreign assets; Commodity prices; Africa (search for similar items in EconPapers)
Pages: 24
Date: 2003-03-01
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Citations: View citations in EconPapers (90)

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