The growth performance of the South African economy over the past two and a half decades has been disappointing. The economy has not reached the high growth rates of the 1960s, which is desperately needed to alleviate poverty in the country. While the sources of growth have been a subject of much debate, recently the notion that the Real Exchange Rate (RER) level of a country matters for growth has attracted attention. While it is generally expected that the value of the currency should not remain constant and that the exchange rate fluctuates over time, in the long-term, it is expected to converge to an equilibrium level South Africa follows an inflation targeting framework and a free floating exchange rate regime. The exchange rate has been highly volatile since the abolishment of the dual exchange rate system in 1995. This implies that there were periods of overvaluation and undervaluation from the equilibrium level; in other words the rand experienced times of misalignment. In the event of misalignments, the RER is moved to levels which make it difficult for an economy to sustain international competitiveness over the long-run, and this is harmful to growth rates in the economy. This is especially true for countries, such as South Africa, which is heavily dependent on exports. The RER is therefore very powerful and has been argued to be the cause of loss of competitiveness and growth slowdowns. This study investigates this notion for South Africa. The main aim of this study is therefore to investigate the effects of RER misalignment on economic growth in South Africa. This implies that the study aims to determine the level of RER equilibrium, the misalignment in the real value of the rand, and how this misalignment has affected economic growth in the country. The Behavioural Equilibrium Exchange Rate (BEER) approach is followed to determine the Equilibrium Exchange Rate (EER), which allows for the use of fundamental macroeconomic variables to determine the real equilibrium level of the rand. Identified fundamental variables, which are the main drivers of the current RER in South Africa, include GDP per capita, trade openness, terms of trade, gross fixed capital formation and the real interest rate differential. A Vector Error-Correction Mechanism (VECM) is used in the estimation of the Real Equilibrium Exchange Rate (REER). Misalignment is calculated as the difference between the actual and the equilibrium real exchange rate. It is found that during the period under investigation (1985 to 2011) there have been substantial misalignments in the RER of the rand, though the currency was mostly overvalued. It is also shown that the rand does revert to its equilibrium level over time. The least square method is used to determine the effect of this RER misalignment on economic growth. Additional variables such as the initial level of GDP per capita, trade openness, terms of trade as well as gross fixed capital formation, are included in the growth specification. Trade reforms emphasise the importance of export-led growth in a commodity-rich economy, such as South Africa. The results indicate that the RER misalignment has a positive coefficient; this implies that a misalignment in the rand has not necessarily been harmful to economic growth. Therefore, it can be concluded that in the case of South Africa, misalignment is generally stimulating growth, but more so when the currency is undervalued. The results therefore show that the RER should be kept at competitive levels in order to boost economic growth in the country. The results also show support for the strategy of export-led growth in South Africa. / Thesis (MCom (Economics))--North-West University, Potchefstroom Campus, 2013.

The growth performance of the South African economy over the past two and a half decades has been disappointing. The economy has not reached the high growth rates of the 1960s, which is desperately needed to alleviate poverty in the country. While the sources of growth have been a subject of much debate, recently the notion that the Real Exchange Rate (RER) level of a country matters for growth has attracted attention. While it is generally expected that the value of the currency should not remain constant and that the exchange rate fluctuates over time, in the long-term, it is expected to converge to an equilibrium level South Africa follows an inflation targeting framework and a free floating exchange rate regime. The exchange rate has been highly volatile since the abolishment of the dual exchange rate system in 1995. This implies that there were periods of overvaluation and undervaluation from the equilibrium level; in other words the rand experienced times of misalignment. In the event of misalignments, the RER is moved to levels which make it difficult for an economy to sustain international competitiveness over the long-run, and this is harmful to growth rates in the economy. This is especially true for countries, such as South Africa, which is heavily dependent on exports. The RER is therefore very powerful and has been argued to be the cause of loss of competitiveness and growth slowdowns. This study investigates this notion for South Africa. The main aim of this study is therefore to investigate the effects of RER misalignment on economic growth in South Africa. This implies that the study aims to determine the level of RER equilibrium, the misalignment in the real value of the rand, and how this misalignment has affected economic growth in the country. The Behavioural Equilibrium Exchange Rate (BEER) approach is followed to determine the Equilibrium Exchange Rate (EER), which allows for the use of fundamental macroeconomic variables to determine the real equilibrium level of the rand. Identified fundamental variables, which are the main drivers of the current RER in South Africa, include GDP per capita, trade openness, terms of trade, gross fixed capital formation and the real interest rate differential. A Vector Error-Correction Mechanism (VECM) is used in the estimation of the Real Equilibrium Exchange Rate (REER). Misalignment is calculated as the difference between the actual and the equilibrium real exchange rate. It is found that during the period under investigation (1985 to 2011) there have been substantial misalignments in the RER of the rand, though the currency was mostly overvalued. It is also shown that the rand does revert to its equilibrium level over time. The least square method is used to determine the effect of this RER misalignment on economic growth. Additional variables such as the initial level of GDP per capita, trade openness, terms of trade as well as gross fixed capital formation, are included in the growth specification. Trade reforms emphasise the importance of export-led growth in a commodity-rich economy, such as South Africa. The results indicate that the RER misalignment has a positive coefficient; this implies that a misalignment in the rand has not necessarily been harmful to economic growth. Therefore, it can be concluded that in the case of South Africa, misalignment is generally stimulating growth, but more so when the currency is undervalued. The results therefore show that the RER should be kept at competitive levels in order to boost economic growth in the country. The results also show support for the strategy of export-led growth in South Africa. / Thesis (MCom (Economics))--North-West University, Potchefstroom Campus, 2013.

The question of an equilibrium exchange rate has always been a debatable issue. Along with rapid growth of the Chinese economy over the past two decades, a number of studies have been undertaken to investigate whether or not the RMB exchange rate is at its long run ‘equilibrium’ level. Because the equilibrium exchange rate affects the competitiveness of a country’s economy, these studies have focused on whether or not the real exchange rate is misaligned with respect to its long-run equilibrium level. One of the main reasons for this concern is that effective management of the exchange rate system could help a country’s economy achieve internal and external balance. Otherwise, it could negatively influence the stability of a country’s financial economy, possibly resulting in regional financial crises. This study estimates time varying values of the equilibrium real effective exchange rate (EREER) and associated exchange rate misalignments for China in recent years (from the first quarter of 1999 to fourth quarter of 2007). The study focuses on the reduced-form equilibrium real exchange rate (ERER) model for developing countries presented by Elbadawi (1994) and follows Edwards’ (1989, 1994) work on models of exchange rate determination. We identify the terms of trade, openness, government expenditure, productivity, and money supply as important explanatory variables of the RMB long-run equilibrium value. We use the Johansen-Juselius (1990) co-integration procedure to analyse our data. Using the ERER model, our results show there is a cointegrating relationship between the real effective exchange rate and its economic fundamentals. Subsequently, compare to other previous studies discussed in Chapter 2, our restricted error-correction model suggests that the extent of the misalignment is not very large, moving in a narrow band of plus and minus 12 percent of the long-run equilibrium level during the sample period. Focusing on the RMB real exchange rate misalignment in recent years, our result shows that the RMB was undervalued by an average of 6.7 percent during the period of 2005Q:3-2007Q:4. Furthermore, our short-run empirical error correction model indicates that, on average, the real exchange rate takes over one quarter to reach its long-run equilibrium level.

Cette thèse analyse la convergence au sein d’une union monétaire par l’intermédiaire de la dynamique des prix et des taux de change d’équilibre. Dans le premier chapitre nous présentons les caractéristiques générales des zones monétaires, ainsi que l’historique de celles que nous étudions : l’UEM et la zone CFA. Le deuxième chapitre traite de la convergence des prix au sein de la zone euro par le biais de modèles à transition lisse. La convergence est non-linéaire, et les vitesses d’ajustements sont différentes selon les pays. Ceci s’explique par les différences dans l’évolution de la compétitivité-prix, les rigidités du marché du travail, mais aussi les schémas de spécialisation. Le troisième chapitre évalue la validité de la Parité des Pouvoirs d’Achat absolue au sein de l’UEM à travers des tests de racine unitaire et de cointégration en panel de deuxième et de troisième générations. Dans l’ensemble, la dynamique des prix apparaît hétérogène et dépendante des périodes d’évolution de l’UEM ainsi que des groupes de pays considérés. Le quatrième chapitre relie les déséquilibres externes à la crise de la dette souveraine que connait l’UEM depuis 2009. Nous montrons que lorsqu’un pays appartenant à une union monétaire fait face à un déséquilibre externe vis-à-vis d’un autre pays membre, l’écart de taux d’intérêts correspondant tend à s’accroître. De plus, lorsque ces déséquilibres persistent, ils peuvent déclencher une crise de la balance des paiements. Enfin le dernier chapitre s’intéresse à la pérennité de la zone CFA. En comparant cette dernière à un échantillon composé d’autres pays d’Afrique Subsaharienne, nous mettons en évidence que malgré son non-respect des critères d’optimalité, la zone CFA a favorisé les équilibres internes et externes, et facilité les ajustements aussi bien au niveau de l’ensemble de la zone, qu’au niveau individuel. Ceci laisse penser que cette union est soutenable. / This thesis analyses the convergence among a monetary union through the price dynamics and the equilibrium exchange rates. In the first chapter we introduce the main characteristics of the monetary areas, as well as the history of those under study: the EMU and the CFA franc zone. The second chapter deals with the price convergence inside the Eurozone via smooth transition regressions. This process is non-linear, and adjustment speeds are dissimilar depending on the countries. It is explained by the differences in the evolution of price competitiveness, labor market rigidities, but also specialization patterns. The third chapter investigates the validity of the absolute Purchasing Power Parity within EMU thanks to second and third generation panel unit root and cointegration tests. On the whole, price dynamics seems to be heterogeneous and depends on the EMU period and group countries considered. The fourth chapter links external disequilibria to the sovereign debt crisis experienced by EMU since 2009. We exhibit that when a country belonging to a monetary union faces an external disequilibrium relative to its main partner, the interest rates spread tends to increase. Moreover, when these disequilibria are persistent, they may trigger a balance of payments crisis. Finally, the last chapter pays attention to the permanence of CFA franc zone. By comparing the latter to a sample of other Sub-Saharan African countries, we evidence that the CFA franc zone has fostered external and internal balances, facilitated adjustments in the zone as a whole, as well as in each of its member, even if it does not fulfill the optimality criteria. This suggests that the union is sustainable.

Cette thèse s’attache à apporter un éclairage nouveau sur le lien âprement discuté et contesté entre fluctuations de change et croissance économique. Nous avons cherché à rendre compte, sous divers exercices empiriques de l'impact des mésalignements sur la croissance économique d'un grand nombre de pays développés, émergents et en voie de développement depuis les années 1980 jusqu'à la période la plus récente. Les quatre applications empiriques de cette thèse ont ainsi toutes vocation à répondre à cette question, mais sous divers angles de vue.Trois principales contributions émanent de notre thèse. La première réside dans l'identification l'impact des mésalignements de change sur la croissance économique, et de son évolution au cours du temps. Cette thématique a fait l'objet des premier et quatrième chapitres. Nous avons montré que les mésalignements sont néfastes pour la croissance sur l'ensemble de la période étudiée (1980-2010) et que la résorption progressive de leur ampleur s'accompagne d'une réduction de leur impact sur la croissance économique pour les principales économies du G7. Ces deux applications, ont mis en lumière la nécessité de rendre compte de la dynamique des mésalignements au cours du temps et de ne pas se cantonner à une approche statique lorsque l'on étudie le lien mésalignement-croissance. La deuxième contribution de notre thèse réside dans la recherche d'une éventuelle non-linéarité dans le lien mésalignement-croissance. Ainsi, nous avons retenu dans le deuxième chapitre un cadre dans lequel les mésalignements peuvent avoir un impact différencié sur la croissance selon que l'on atteint un certain seuil, c'est-à-dire un certain niveau de sur ou de sous-évaluation. A l'aide d'un modèle à seuil, nous avons mis en lumière l'existence de non linéarités dans la relation entre mésalignement et croissance. Plus spécifiquement, nous avons montré qu'une monnaie sous-évaluée a un impact positif sur la croissance, et ce, jusqu'à un certain seuil. Conformément aux attentes, ce seuil est plus élevé pour notre échantillon de pays asiatiques, mais est en outre de moindre ampleur pour notre échantillon de pays émergents. Nous relions ce résultat au concept de péché originel, qui empêche ces pays d'emprunter dans leur propre monnaie. Bien que l'analyse non-linéaire souligne les effets bénéfiques d'une monnaie mésalignée jusqu'à un certain seuil de sous-évaluation, il convient de souligner que la modélisation retenue n'autorise pas des seuils propres à chaque individu du panel. La troisième contribution de notre thèse réside dans l'analyse de la transmission internationale des mésalignements des devises sur la croissance économique de l’ensemble des pays, développés et émergents. Ainsi, à l’aide d’un modèle GVAR autorisant les interdépendances et, par conséquent, les phénomènes de spillover entre pays, nous étudions les effets de la surévaluation et de la sous-évaluation du dollar, de l’euro et du renminbi sur leur propre croissance mais également celle de leurs partenaires. Les résultats font ressortir le leadership de l’économie américaine dans la croissance mondiale, mais il apparait également que la réduction des déséquilibres mondiaux ne passe pas par un ajustement du dollar. / This thesis attempts to shed new light on the link hotly debated and contested between exchange rates fluctuations and economic growth. We sought to report under various empirical exercises the impact of misalignments on economic growth in many developed, emerging and developing countries since the 1980s until the most recent period. The four empirical applications of this thesis and all intended to answer this question, but from different angles of view. Three main contributions come from our thesis. The first on is to identify the impact of exchange rate misalignments on economic growth, and its evolution accross time. We have shown that misalignments are harmful for growth throughout the following period (1980-2010) and the gradual reduction of their magnitude is accompanied by a reduction of their impact on economic growth in the major economies G7. The second contribution of this thesis lies in the search for a possible non-linearity in the misalignment-growth nexus. Using a threshold model, we have highlighted the existence of non-linearities in the relationship between misalignments and growth. The third contribution of this thesis lies in the analysis of the international transmission of currency misalignments on economic growth for both developed and emerging markets. Thus, using a GVAR model, we investigate the effects of overvaluation and undervaluation of the dollar, the euro and the renminbi on their own growth, but also that of their partners. The results highlight the leadership of the U.S. economy in global growth, but it also appears that the reduction of global imbalances is not linked to an adjustment of the dollar.

Magister Commercii - MCom / Issues pertaining to the misalignment of exchange rate have become central in the analysis of open economy macroeconomics for developing countries. This is at least due to two reasons: first persistent overvaluation of currency is seen as a powerful early warning of potential currency crisis and second protracted periods of exchange rate misalignment are highly associated with poor economic performance in a number of developing countries. Owing to this fact, economists are in concession that aligning real exchange rates towards their equilibrium values is an important component of macroeconomic policy adjustments in order to achieve and maintain a sustainable development. For this purpose the estimation of the degree of the real exchange rate misalignment has become pivotal. However, despite the concession among economists regarding the need to minimize the frequency and magnitude of exchange rate misalignment, the estimation of the equilibrium exchange rate (hence the misalignment) has been among the most controversial and challenging issues in modem macroeconomics. For several decades, the Purchasing power parity (PPP) approach-which is based on the law of one price-has been the most widely used methodology for the estimation of the equilibrium exchange rate in both developed and developing countries. In South Africa some attempts have been made to estimate the misalignment of the rand against major currencies on the basis of the PPP approach. However, large numbers of empirical studies show that PPP does not hold except in the 'ultra' long run. In addition, PPP's assumption of a constant equilibrium exchange rate makes it ill-fitted to serve as a bench-mark for the analysis of the exchange rate in countries such as South Africa that experience substantial structural changes. As a result a number of macro-econometric models underlying on the macroeconomic determinants of exchange rate have been developed, albeit with little applicability in developing countries. In this study, we have used Edwards' (1989) intertemporal general equilibrium model of a small open economy in order to estimate the degree of the real exchange rate misalignment and its impact on the international trade competitiveness of the South African economy for the period 1985:1-2000:4. For this purpose a dynamic single equation error correction model of a first order autoregressive distributed lag model, ADL (1,1), and five years moving average technique have been employed to estimate the exchange rate misalignment. Whereas impulse response analysis and variance decomposition techniques of a cointegrated VAR (vector auto regression) have been established to assess the impact of the misalignment on trade competitiveness. The fmdings of the study reveal that the real exchange rate had been consistently overvalued during the period' 1988:3-1998:2 but undervalued during periods 1998:3- 2000:4. For most of the periods during 1985:1-1988:2 the rand had been undervalued. More over the study discloses that exchange rate misalignment debilitates South Africa's international trade competitiveness accounting for 20 percent of the variation in competitiveness.

Au début des années 2000, les pays africains se sont engagés dans des projets d'unions monétaires régionales dans le but de créer une monnaie unique pour tout le continent à l'horizon 2028. L'objectif de cette thèse est d'analyser le bien-fondé d'une telle stratégie, à partir notamment des enseignements qui peuvent être tirés de l'expérience des pays de la zone CFA. Plus précisément, nous analysons les conséquences du choix de ces pays consistant à ancrer leurs monnaies communes à une monnaie extérieure et nous cherchons à savoir s'il est souhaitable ou pas de transposer l'expérience de ces pays à d'autres régions en Afrique.Dans une première partie, nous revisitons les critères d'optimalité des zones CFA et ZMAO en nous intéressant à la dynamique des taux de change réels. Nous mettons en évidence des similarités intéressantes entre les pays de l'UEMOA, le Ghana, la Gambie et la Sierra Léone d'une part et entre le Nigéria et la CEMAC d'autre part, indiquant que ces deux groupes de pays pourraient chacun partager une monnaie commune. Nous suggérons également que les critères d'optimalité de la théorie des zones monétaires optimales ne sont pas forcément pertinents. Ainsi, nous montrons, qu'à défaut d'être optimale, la zone CFA, en facilitant les équilibres interne et externe comparativement à d'autres pays d'Afrique Sub-saharienne (ASS), est une zone monétaire soutenable.Dans une seconde partie, nous nous intéressons aux implications économiques du régime de change des pays de la zone CFA qui s'apparente à ce que nous avons appelé un « double ancrage » (c'est-à-dire appartenance à une union monétaire et ancrage de la monnaie commune). Nous montrons que l'appréciation réelle du franc CFA au cours de la dernière décennie s'explique par l'ancrage à un euro qui s'est continuellement apprécié depuis 2001. Elle a conduit à réduire les gains de compétitivité réalisés à la suite de la dévaluation de 1994 et à accroitre les effets négatifs de l'appréciation du taux de change sur la croissance de ces pays. Enfin, en analysant les différences de performances économiques entre les différents régimes de change en vigueur dans l'ASS, nous avançons l'idée selon laquelle un régime d'union monétaire sans ancrage à une monnaie externe pourrait être une meilleure option pour ces pays. / Since the early 2000s, African countries are engaged in regional monetary unions' projects in order to create a single currency for this continent in 2028. The aim of this PhD thesis is to analyze the relevance of such a strategy upon the lessons learned from the experience of the CFA zone countries. Specifically, we analyze the consequences of the choice of those countries to anchor their common currencies to a foreign currency and we look to see whether it is desirable or not to replicate the experience of the CFA zone in other African regions.In a first part, we revisit the arguments about optimum currency areas of the CFA and the WAMZ zones, by studying real exchange rate dynamics. We find interesting similarities between WAEMU and Ghana, Gambia and Sierra Leone as well as between Nigeria and CAEMC, indicating that each of these groups of countries could share its common currency. We also argue that the arguments about optimum currency areas have proved to be less than relevant. Thus we show that, if not optimal, the CFA zone, by facilitating internal and external balances compared to other countries in Sub-Saharan Africa (SSA), is a sustainable monetary area.In a second part, we focus on the economic implications of the exchange rate regime of the CFA countries which consists in what we have called a "double anchoring" (i.e. a monetary union in which the common currency is anchored to a foreign one). We show that the real appreciation of the CFA franc, in the last decade, is due to its peg to the euro that has continuously appreciated since 2001. This appreciation has led to reduced competitiveness gains achieved with the 1994 devaluation and to increase the negative effects of exchange rate's appreciation on economic growth. Finally, analyzing the differences in economic performances between the exchange rate regimes adopted in SSA, we suggest that a monetary union without an external anchor currency could be a better regime for these countries.

The thesis focuses on the question of undervaluation of the renminbi exchange rate to the U.S. dollar from the perspective of three selected alternative methods of calculating long term equilibrium exchange rate. In the case of calculations of behavioral equilibrium exchange rate and the natural real exchange rate, I performed calculations by using vector error correction model. In the case of fundamental equilibrium exchange rate I used error correction model. The input data used in the models are ranging from 1980 to 2010. Those are primarily value of nominal exchange rates, price levels and foreign trade. According to my results behavioural and fundamental equilibirum exchange rate show undervaluation of the renminbi to the year 2010, while the natural real exchange rate indicates a slight overvaluation of the renminbi to the year 2010.