Commodity Prices and Exchange Rate Volatility: Lessons from South Africa’s Capital Account Liberalization
IMF Working Papers, June 1, 2012
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- Commodity Prices and Exchange Rate Volatility: Lessons from South Africa’s Capital Account Liberalization
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Bibliographic details
- Authors: Elena Dumitrescu, Rabah Arezki, Andreas Freytag, Marc G Quintyn
- Published: June 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475505160.001
Summary
- Study examines the relationship between South African Rand and gold price volatility using monthly data for the period 1980-2010.
- Main finding: prior to capital account liberalization the causality runs from South African Rand to gold price volatility; for the post-liberalization period the causality runs from gold price volatility to South African Rand.
- Conclusion drawn: gold price volatility plays a key role in explaining both the excessive exchange rate volatility and the disproportionate share of speculative (short-run) inflows South Africa has experienced since opening its capital account.
Data and scope
- Frequency: monthly data.
- Sample period: 1980-2010.
- Commodities focused: gold price data and gold price volatility.
- Exchange rate focus: South African Rand, including real exchange rates and real effective exchange rates.
Major findings
- Causality patterns:
- Pre-liberalization: causality runs from South African Rand → gold price volatility.
- Post-liberalization: causality runs from gold price volatility → South African Rand.
- Policy-relevant interpretation:
- Gold price volatility is a key explanatory factor for:
- excessive exchange rate volatility, and
- the disproportionate share of speculative (short-run) inflows following capital account opening.
Subjects and keywords (as listed)
- Subjects: Balance of payments, Capital account liberalization, Commodity price fluctuations, Foreign exchange, Gold prices, Prices, Real effective exchange rates, Real exchange rates.
- Keywords: Africa, Capital account liberalization, commodities, commodity, Commodity price fluctuations, error correction term, exchange rate, exchange rate volatility, export commodity price, financial flows, gold price data, gold price volatility, Gold prices, price, price volatility, Real effective exchange rates, Real exchange rate, Real exchange rates, UNCTAD commodity statistics, volatility, WP.