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The fundamental determinants of the South African real exchange rate from 1995 to 2014
In a connected world, the foreign exchange rate for any country ensures that exports are competitive, imports are affordable, and there exists an economic environment conducive for sustainable growth of the economy. South Africa as an emerging country is no exception. Many stakeholders including, th...
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| Format: | Thesis |
| Language: | English |
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Research of GSB
2017
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| _version_ | 1867614219513364480 |
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| access_status_str | Open Access |
| author | Majaya, Thomas Bongani |
| author2 | Biekpe, Nicholas |
| author_browse | Biekpe, Nicholas Majaya, Thomas Bongani |
| author_facet | Biekpe, Nicholas Majaya, Thomas Bongani |
| author_sort | Majaya, Thomas Bongani |
| collection | Thesis |
| description | In a connected world, the foreign exchange rate for any country ensures that exports are competitive, imports are affordable, and there exists an economic environment conducive for sustainable growth of the economy. South Africa as an emerging country is no exception. Many stakeholders including, the South African Reserve Bank (SARB) as the monetary authority of the country are interested in understanding the key factors that influence the South African exchange rate and how these factors may be managed effectively to ensure sustainable economic growth for the South African economy. This research studies the fundamental determinants of the real exchange rate (RER) for South Africa under a market driven floating exchange rate arrangement from March 1995 to December 2014. The research investigates the effects of the fundamental determinants of the RER on the South African rand using Johansen's method and a Vector Error Correction Model (VECM). The results of the research show that five fundamental variables drove the RER for the 20 years from 1995 to 2014 mainly commodity prices, interest rate differential, net foreign assets, terms of trade, openness and productivity. The most significant of these determinants were commodity prices, openness and productivity. The interaction of commodity prices and the RER point to the fact that South Africa does not suffer from the Dutch Disease. The research also supports the Balassa-Samuelson effect where an increase in productivity causes RER appreciation. In terms of policy, the research recommends that South Africa should continue to strengthen the manufacturing export led strategy as well as diversifying the economy. This entails growing the manufacturing sector, diversifying the export markets to reduce reliance on China and the Euro Zone. South Africa should continue with the inflation targeting policy of the SARB, implemented through the interest rate instrument, which only affects the domestic economy and has no major effect on the RER. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/25332 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:48:34.105Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2017 |
| publishDateRange | 2017 |
| publishDateSort | 2017 |
| publisher | Research of GSB |
| publisherStr | Research of GSB |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/25332 The fundamental determinants of the South African real exchange rate from 1995 to 2014 Majaya, Thomas Bongani Biekpe, Nicholas Development Finance In a connected world, the foreign exchange rate for any country ensures that exports are competitive, imports are affordable, and there exists an economic environment conducive for sustainable growth of the economy. South Africa as an emerging country is no exception. Many stakeholders including, the South African Reserve Bank (SARB) as the monetary authority of the country are interested in understanding the key factors that influence the South African exchange rate and how these factors may be managed effectively to ensure sustainable economic growth for the South African economy. This research studies the fundamental determinants of the real exchange rate (RER) for South Africa under a market driven floating exchange rate arrangement from March 1995 to December 2014. The research investigates the effects of the fundamental determinants of the RER on the South African rand using Johansen's method and a Vector Error Correction Model (VECM). The results of the research show that five fundamental variables drove the RER for the 20 years from 1995 to 2014 mainly commodity prices, interest rate differential, net foreign assets, terms of trade, openness and productivity. The most significant of these determinants were commodity prices, openness and productivity. The interaction of commodity prices and the RER point to the fact that South Africa does not suffer from the Dutch Disease. The research also supports the Balassa-Samuelson effect where an increase in productivity causes RER appreciation. In terms of policy, the research recommends that South Africa should continue to strengthen the manufacturing export led strategy as well as diversifying the economy. This entails growing the manufacturing sector, diversifying the export markets to reduce reliance on China and the Euro Zone. South Africa should continue with the inflation targeting policy of the SARB, implemented through the interest rate instrument, which only affects the domestic economy and has no major effect on the RER. 2017-09-23T06:21:45Z 2017-09-23T06:21:45Z 2017 Master Thesis Masters MCom http://hdl.handle.net/11427/25332 eng application/pdf Research of GSB Faculty of Commerce University of Cape Town |
| spellingShingle | Development Finance Majaya, Thomas Bongani The fundamental determinants of the South African real exchange rate from 1995 to 2014 |
| thesis_degree_str | Master's |
| title | The fundamental determinants of the South African real exchange rate from 1995 to 2014 |
| title_full | The fundamental determinants of the South African real exchange rate from 1995 to 2014 |
| title_fullStr | The fundamental determinants of the South African real exchange rate from 1995 to 2014 |
| title_full_unstemmed | The fundamental determinants of the South African real exchange rate from 1995 to 2014 |
| title_short | The fundamental determinants of the South African real exchange rate from 1995 to 2014 |
| title_sort | fundamental determinants of the south african real exchange rate from 1995 to 2014 |
| topic | Development Finance |
| url | http://hdl.handle.net/11427/25332 |
| work_keys_str_mv | AT majayathomasbongani thefundamentaldeterminantsofthesouthafricanrealexchangeratefrom1995to2014 AT majayathomasbongani fundamentaldeterminantsofthesouthafricanrealexchangeratefrom1995to2014 |