The Link between the U.S. Dollar Real Exchange Rate, Real Primary Commodity Prices, and LDCS' Terms of Trade

1987 ◽  
Vol 69 (3) ◽  
pp. 547 ◽  
Author(s):  
Agathe Cote
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Commodity Prices ◽  
Terms Of Trade ◽  
Primary Commodity ◽  
The U.S

The Determinants of Long-run Real Exchange Rate in South Africa: A Fundamental Equilibrium Approach

2015 ◽  
Vol 15 (3) ◽  
pp. 319-336 ◽  
Author(s):  
Bernard Njindan Iyke ◽  
Nicholas M. Odhiambo
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Openness ◽  
Commodity Prices ◽  
Testing Procedure ◽  
Terms Of Trade ◽  
Bounds Testing ◽  
The Real ◽  
Long Run

In this paper, we identify the fundamental determinants of the long-run exchange rate in South Africa. We then estimate the equilibrium real exchange rate for this country using a dataset covering the period 1975–2012. In order to account for possible short-run fluctuations in the real exchange rate, we conducted a cointegration test using the ARDL bounds testing procedure. First, we found terms of trade, trade openness, government consumption, net foreign assets and real commodity prices to be the long-run determinants of the real exchange rate in South Africa. Second, we found that nearly 68.06% of the real exchange-rate disequilibrium is corrected annually. Overall, the estimated equilibrium rate indicates that the Rand has been depreciating in real terms over the years. Tightening trade openness is not an option, given international agreements; on the other hand, terms of trade and real commodity prices are determined by the world market. The obvious policy alternative is for South Africa to increase government spending and moderately decrease her net foreign asset position.

Commodity prices, the exchange rate and manufacturing in South Africa: what do the data say?

2015 ◽  
Vol 6 (4) ◽  
pp. 356-379 ◽  
Author(s):  
Duncan Hodge
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Money Supply ◽  
Positive Relationship ◽  
Commodity Prices ◽  
Dutch Disease ◽  
Content Type ◽  
Labour Costs ◽  
Unit Labour Costs

Purpose – The purpose of this paper is to investigate the empirical relationships between changes in OECD output, commodity prices, the real exchange rate, real money supply, unit labour costs and manufacturing in South Africa. In particular, to test a version of the Dutch disease argument that increases in the prices of South Africa’s main commodity exports have had a negative effect on domestic manufacturing against the alternative hypothesis that there is a positive relationship between such changes in commodity prices and domestic manufacturing output. Design/methodology/approach – Construction of a model including real manufacturing output in South Africa as the dependent variable and the following independent variables: OECD output, an international real metals price index, a real effective exchange rate index, real M3 money supply and manufacturing unit labour costs. The time series sample data comprise 124 quarterly observations for the period 1980-2010. The model equation was tested and estimated using a Johansen cointegration approach. Findings – The main findings are: OECD output is the single most important determinant of domestic manufacturing output; while the real exchange rate has the predicted negative sign, rising commodity prices are associated with increases rather than decreases in domestic manufacturing and; large increases in unit labour costs since the early 1980s have dragged down manufacturing over the sample period. Originality/value – The finding of a positive relationship between commodity prices and domestic manufacturing means that the Dutch disease argument must be revised when applied to South Africa. While rising commodity prices may lead to a negative exchange rate effect on manufacturing competitiveness, this is more than offset by the positive growth effects associated with upswings in the commodity price cycle.

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