Real effective exchange rates comovements and the South African currency

Abstract

The study analyses comovement between the real effective exchange rate of South Africa and those of a sample of countries that include the world’s major economies as well as emerging and developing economies. The comovement is examined over the short and long term as well as pre and post the recent global financial crisis. The results show that, although the real effective exchange rate of South Africa shows some comovement with those of the selected countries, such comovement is mixed and inconsistent. Currencies that belong to a similar grouping in terms of economic development and geographical location display both positive and negative comovement with the real effective exchange rate of South Africa. There is also no consistency in the comovement between the real effective exchange rate of South Africa and those of the selected countries pre and post the recent financial crisis. The results further show that the comovement between the real effective exchange rate of South Africa and those of some of the selected sample of countries is stronger between the trend component than it is between the cyclical component.