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An Econometric Model of the Rand-US Dollar Nominal Exchange Rate

Moses Sichei, Tewodros Gebreselasie and Olusegun Akanbi
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Moses Sichei: Department of Economics, University of Pretoria
Tewodros Gebreselasie: Department of Economics, University of Pretoria

No 200514, Working Papers from University of Pretoria, Department of Economics

Abstract: Modeling the nominal exchange rate has been one of the most difficult exercises in economics. This paper attempts to estimate the nominal rand-USD exchange rate under the Dornbusch(1980) and Frankel (1979) overshooting model using the Johansen cointegration technique. The overshooting model fits the data well and that commodity prices are sticky in South Africa. Thus any monetary policy strategy to strengthen or weaken the rand by means of raising or cutting interest rate does the opposite in the short-run.

Keywords: Exchange rate; overshooting model; VECM (search for similar items in EconPapers)
JEL-codes: B23 C22 F31 (search for similar items in EconPapers)
Date: 2005-12
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