Surprise, Surprise: What Drives the Rand/U.S. Dollar Exchange Rate Volatility?

39 Pages Posted: 9 Dec 2016

See all articles by Nasha Maveé

Nasha Maveé

International Monetary Fund (IMF)

Roberto Perrelli

International Monetary Fund (IMF)

Axel Schimmelpfennig

International Monetary Fund (IMF)

Date Written: October 2016

Abstract

This paper investigates possible drivers of volatility in the South African rand since the onset of the global financial crisis. We assess the role played by local and international economic surprises, commodity price volatility, global market risk perceptions, and local political uncertainty. As a measure of rand volatility, the study uses a market-based implied volatility indicator for the rand/U.S. dollar exchange rate. Economic surprises - the difference between market expectations and data prints - are captured by Citi's Economic Surprise Index which is available for South Africa and its main economic partners. The results suggest that rand volatility is mainly driven by commodity price volatility, and global market volatility, as well as domestic political uncertainty. In addition, economic surprises originating in the United States matter, but not those originating from South Africa, Europe, or China.

Keywords: Exchange rates, South Africa, United States, rand, US dollar, Foreign exchange market volatility, Econometric models, Rand; volatility; macroeconomic surprises; spillovers; commodities.

JEL Classification: F31, F37, G15, G17

Suggested Citation

Maveé, Nasha and Perrelli, Roberto and Schimmelpfennig, Axel, Surprise, Surprise: What Drives the Rand/U.S. Dollar Exchange Rate Volatility? (October 2016). IMF Working Paper No. 16/205. Available at SSRN: https://ssrn.com/abstract=2882641

Nasha Maveé (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Roberto Perrelli

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Axel Schimmelpfennig

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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