## 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

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### 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).*

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