Browsing by Subject "Exchange rate"

Now showing 1 - 3 of 3
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    Exchange rate policy and the responses to exogenous shocks : the case of Botswana : 1976-1994
    (1996) Dimpe, Utlwanang; Kahn, Brian
    The main objective of this paper is to discuss exchange rate policies in Botswana from 1976 to 1994. It is also an attempt to find out how Botswana has responded to exogenous shocks and whether such responses could be used in the future when shocks recur. The paper contends that Botswana's record in responding to shocks has been impressive. This is not to say that previous policy actions in response to shocks would be adequate when shocks occur again. Experience shows that it is difficult to respond to exogenous shocks when they take time to subside.
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    Monetary policy and exchange rates in different economic contexts: Case study of South Africa
    (2022) Choga, Simba; Chamisa, Edward
    The aim of this study is to examine the relationship between the interest rate and money supply with the exchange rate in South Africa in three periods:- before the global financial crisis (GFC) (Jan 2002 – Jan 2007), during the GFC (Jan 2008 – Dec 2009) and after the GFC (Jan 2010 – Jan 2016). No clear direction on the relationship between the monetary policy and the exchange rate has been ascertained in developing and developed economies. The Autoregressive-Distributed Lag (ARDL) model is utilized to find the objective of this study. Not much research has taken place involving the relationship of the interest rates, money supply with the exchange rate in the context of South Africa. To my knowledge this is the first study that incorporates the ARDL model to try and ascertain the type of relationship these variables have in South Africa. Therefore, new insights are yielded in the academic arena from this research's results. The results show that there is no significant relationship between the money supply and the exchange rate both in the short and long run in all three economic contexts. A significant effect is found from the interest rate on the exchange rate in the short run during and after the GFC. However, no relationship is found before the GFC between the interest rate and exchange rate. In addition, no relationship is found in the long run between the variables in all three economic contexts. The results suggest that the South African Reserve Bank SARB had a huge influence on the exchange rate during and after the GFC through changing the repo rate.
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    The role of exchange rate in small open economies : the case of Tanzania
    (2015) Mtenga, Threza Louis; Abraham, Haim; Ellyne, Mark; Kotze, Kevin
    This thesis addresses exchange rate behaviour in a de-facto partially dollarized economy. Over the past two decades the Tanzanian Shilling has been increasingly displaced by the United States dollar. This change has been prompted by instability of the local currency, and by the practices of foreign firms, which have used a dual pricing system at rates disadvantageous to the local currency. The implications of Tanzania's dollarization are traced through three related investigations: whether theTanzania Shilling to United States Dollar exchange rate overshoots, whether it has impacted the monetary transmission mechanism, and whether dollarization has substantively affected the pattern of Tanzania's foreign trade. The first study uses the Structural Vector Autoregression to test if the overshooting hypothesis holds for the TZS-USD exchange rate.The results suggest that foreign currency deposits are encouraged by the volatility of the exchange rate.In addition it is noted that the exchange rate demonstrates delayed overshooting, while a contractionary monetary policy leads to appreciation in the exchange rate for at least a year before returning to equilibrium. The determinants of the exchange rate in Tanzania are trade openness, real interest differentials, labour productivity and government expenditure. The second study uses a Bayesian Vector Autoregression to investigate the monetary transmission mechanism in the presence of dollarization. The results indicate that positive shocks on the interest rate contract money supply, which leads to lower output growth and inflation, while the exchange rate appreciates. The degree of dollarization also has a negative impact on the monetary supply of the local currency, as the central bank seeks to maintain a relatively constant rate of total money supply. This has the effect of lowering the inflation and interest rates, and is also associated with further depreciation of the exchange rate. The positive shock on the exchange rate (depreciation) is associated with an increase in dollarization.The aggregate demand shock fuels inflation and, in Tanzania's case, it has increased money supply, due to the persistent demand for real monetary balances. The third study uses a Dynamic Stochastic General Equilibrium to describe the conduct of monetary policy in a small, open, and partially dollarized Tanzanian economy. The structure of the model incorporates the expectations of agents and the dynamic relationships are explained in terms of structural representations that characterize the behaviour of the firm, household and central bank. The parameters in the model are estimated with Bayesian techniques, after it has been applied to Tanzanian data. The effects of individual shocks, including those that may be used to describe the conduct of monetary policy, are then considered. These simulations suggest that despite the existence of partial dollarization in the Tanzanian economy, monetary policy has important, short-term, real effects. The fourth study uses an Autoregressive Distributed Lag approach to investigate the short and long run exchange rate sensitivity of foreign trade. Principal components analysis is also used to reduce the dimension of the dataset. It finds evidence that the depreciation of the Shilling typically has an immediate positive impact on the trade balance, and exchange rate depreciation increases the trade balance in both the short and long run. However, exports show signs that support the J-curve hypothesis, though the associated parameters are not significant. Imports are not reduced by a rise in the Shilling, as traditional theory would suggest. This is ascribed to the country's de-facto partial dollarization. Since over 40 per cent of money supply arecurrently held in dollar denominated accounts, trade is largely immune to domestic currency fluctuations. This study also notesthat the use of foreign currency has tended to rise during periods of substantial economic growth. Although no causality is argued, this does suggest that the parallel use of foreign and domestic currencies is not detrimental to Tanzania's economic growth.