Sources of Nominal Exchange Rate Fluctuations in South Africa
IMF Working Papers, December 1, 2003
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Bibliographic details
- Authors: Jan Gottschalk, Ashok Bhundia
- Published: December 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451875935.001
Summary
- Paper investigates sources of fluctuations in the rand-U.S. dollar exchange rate in 2001 and 2002 using an empirical exchange rate model that identifies aggregate supply, aggregate demand, and nominal disturbances as possible sources.
- Authors: Jan Gottschalk, Ashok Bhundia.
- Date: December 1, 2003.
- Series: Working Paper No. 2003/252.
- Pages: 25.
Key findings
- Nominal disturbances explain by far most of the rand depreciation in the final quarter of 2001.
- The nominal effective exchange rate also depreciated sharply in the same period, suggesting 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, and
- 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.
Analysis and methodological notes
- The empirical approach distinguishes three possible sources of exchange rate fluctuations:
- aggregate supply disturbances,
- aggregate demand disturbances,
- nominal disturbances.
- The task of identifying the underlying cause of the nominal disturbances in 2001 and 2002 is described as challenging given the empirical tools available.
Policy-relevant implications
- Evidence points to domestically generated nominal disturbances as a key driver of the rand depreciation in late 2001.
- Available preliminary monetary and interest-rate data do not permit a definitive identification of the precise monetary or policy mechanism responsible for the nominal disturbances during 2001–2002.
- The difficulty of isolating causes indicates a need for further empirical development and deeper data analysis to inform policy responses.
Jan Gottschalk and Ashok Bhundia, "Sources of Nominal Exchange Rate Fluctuations in South Africa", IMF Working Papers 2003, 252 (2003).
Content in this bundle
- _wp03252 - References