Sources of Nominal Exchange Rate Fluctuations in South Africa

25 Pages Posted: 9 Feb 2006

See all articles by Ashok Bhundia

Ashok Bhundia

International Monetary Fund (IMF)

Jan Gottschalk

International Monetary Fund (IMF) - Policy Development and Review Department

Multiple version iconThere are 2 versions of this paper

Date Written: December 2003

Abstract

This paper investigates the sources of fluctuations in the rand-U.S. dollar exchange rate in 2001 and 2002 using an empirical exchange rate model which identifies aggregate supply, aggregate demand, and nominal disturbances as possible sources for exchange rate fluctuations. According to our results, nominal disturbances explain by far most of the rand depreciation in the final quarter of 2001. The fact that the nominal effective exchange rate also depreciated sharply suggests the nominal disturbances were domestically generated. From a preliminary examination of the relative movements in policy interest rates in South Africa and the United States, along with growth rates in both narrow and broad monetary aggregates in South Africa, it is difficult to isolate the underlying cause of the nominal disturbances in 2001 and 2002. Clearly, the task remains a challenging one with the empirical tools available.

Keywords: Nominal exchange rate, real disturbances, nominal disturbances, structural VAR

JEL Classification: E3, F41

Suggested Citation

Bhundia, Ashok and Gottschalk, Jan, Sources of Nominal Exchange Rate Fluctuations in South Africa (December 2003). IMF Working Paper No. 03/252. Available at SSRN: https://ssrn.com/abstract=879066

Ashok Bhundia (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Jan Gottschalk

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

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