Commodity Prices and Exchange Rate Volatility: Lessons from South Africa's Capital Account Liberalization

20 Pages Posted: 1 Nov 2012

See all articles by Rabah Arezki

Rabah Arezki

World Bank - African Development Bank

Elena Dumitrescu

University of Orleans - Laboratoire d'économie d'Orléans; European University Institute

Marc Quintyn

International Monetary Fund (IMF)

Date Written: June 2012

Abstract

We examine the relationship between South African Rand and gold price volatility using monthly data for the period 1980-2010. Our main findings is that prior to capital account liberalization the causality runs from South African Rand to gold price volatility but the causality runs the other way around for the post-liberalization period. These findings suggest that gold price volatility plays a key role in explaining both the excessive exchange rate volatility and current disproportionate share of speculative (short-run) inflows that South Africa has been coping with since the opening up of its capital account.

Keywords: Exchange Rate, Volatility, Commodities, Financial Flows, Capital Account Liberalization, Commodity Price Fluctuations, Exchange Rates, Gold Prices

JEL Classification: F21, F31, F32, Q00

Suggested Citation

Arezki, Rabah and Dumitrescu, Elena and Dumitrescu, Elena and Quintyn, Marc, Commodity Prices and Exchange Rate Volatility: Lessons from South Africa's Capital Account Liberalization (June 2012). IMF Working Paper No. 12/168, Available at SSRN: https://ssrn.com/abstract=2169713

Rabah Arezki (Contact Author)

World Bank - African Development Bank ( email )

15 Avenue du Ghana
P.O.Box 323-1002
Tunis-Belvedère
Tunisia

Elena Dumitrescu

University of Orleans - Laboratoire d'économie d'Orléans ( email )

Rue de Blois BP6739
Rue de Blois
Orléans cedex 2, Centre 45067
France

European University Institute ( email )

Villa La Fonte
10 Via delle Fontanelle
Firenze (Florence), 50014
Italy

Marc Quintyn

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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