The fundamental determinants of the South African real exchange rate from 1995 to 2014

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dc.contributor.advisorBiekpe, Nicholasen_ZA
dc.contributor.authorMajaya, Thomas Bonganien_ZA
dc.date.accessioned2017-09-23T06:21:45Z
dc.date.available2017-09-23T06:21:45Z
dc.date.issued2017en_ZA
dc.description.abstractIn 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.en_ZA
dc.identifier.apacitationMajaya, T. B. (2017). <i>The fundamental determinants of the South African real exchange rate from 1995 to 2014</i>. (Thesis). University of Cape Town ,Faculty of Commerce ,Research of GSB. Retrieved from http://hdl.handle.net/11427/25332en_ZA
dc.identifier.chicagocitationMajaya, Thomas Bongani. <i>"The fundamental determinants of the South African real exchange rate from 1995 to 2014."</i> Thesis., University of Cape Town ,Faculty of Commerce ,Research of GSB, 2017. http://hdl.handle.net/11427/25332en_ZA
dc.identifier.citationMajaya, T. 2017. The fundamental determinants of the South African real exchange rate from 1995 to 2014. University of Cape Town.en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Majaya, Thomas Bongani AB - 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. DA - 2017 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2017 T1 - The fundamental determinants of the South African real exchange rate from 1995 to 2014 TI - The fundamental determinants of the South African real exchange rate from 1995 to 2014 UR - http://hdl.handle.net/11427/25332 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/25332
dc.identifier.vancouvercitationMajaya TB. The fundamental determinants of the South African real exchange rate from 1995 to 2014. [Thesis]. University of Cape Town ,Faculty of Commerce ,Research of GSB, 2017 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/25332en_ZA
dc.language.isoengen_ZA
dc.publisher.departmentResearch of GSBen_ZA
dc.publisher.facultyFaculty of Commerceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.subject.otherDevelopment Financeen_ZA
dc.titleThe fundamental determinants of the South African real exchange rate from 1995 to 2014en_ZA
dc.typeMaster Thesis
dc.type.qualificationlevelMasters
dc.type.qualificationnameMComen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceThesisen_ZA
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