Since the early 1970s, exchange rate fluctuations have characterised the behaviour of the external
value of many currencies in both high- and low-income countries. Up-and-down movements in real
exchange rates have been observed under fixed as we:ll as flexible arrangements. This is in spite of
the fact that many less developing countries (until the 1980s), unlike the major industrialised
countries, opted to retain relatively rigid exchange rate systems after the collapse of the Bretton
Woods system. Exchange rate volatility has been a subject of much concern in government, business
and academic circles because it has been associated with negative effects on the performance of
developing economies. Consequences of these large swings in exchange rates have included
uncertainty and delays in business decisions, resource misallocation, interest rate volatility and real
exchange rate misalignments. For the period, froln1970 to 1996, this study investigates the
phenomenon of real exchange rate disequilibrium in developing countries, with an empirical and
econometric examination of South African data. Using the ordinary least squares and the EngleGranger
cointegration techniques, this investigation found that government consumption of
nontradables, the price of gold in rand, the overall terms of trade and the rate of depreciation are
important determinants of the short-run behaviour ofthe real effective exchange rate in South Africa.
With regard to the long-run the permanent componen1ts ofthe fundamentals - namely, technological
or productivity improvement, trade policy, governm1ent consumption of nontradables, disposable
income, capital flows, the terms of trade excluding gold and the rand price of gold -, were found to
be significantly related to the equilibrium conduct of the real effective exchange rate. Instances of
real exchange rate misalignment were found in both periods of fixed and flexible exchange rate
management. / Thesis (M.Soc.Sci.)-University of Natal, Pietermaritzburg, 1999.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:ukzn/oai:http://researchspace.ukzn.ac.za:10413/5771 |
| Date | January 1999 |
| Creators | Tembo, G. |
| Contributors | Mainardi |
| Source Sets | South African National ETD Portal |
| Language | en_ZA |
| Detected Language | English |
| Type | Thesis |
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