Abstract
This study investigates the sensitivity of macroeconomic variables to exchange rate shocks in Nigeria and South Africa between 1982 and 2018. Specifically, the study investigated the response of Foreign Direct Investment (FDI), Gross Domestic Product growth rate (GDPGR), Import rate (IMPORTR), Export rate (EXPORTR) and Inflation rate (INFR) to exchange rate shock in these Countries. The data used for analysis is secondary by nature and was obtained from the World Development Bank Indicators. The estimation technique employed was structural Vector autoregression (SVAR), impulse response function (IRF), and variance decomposition function (VDF). The Structural Var result revealed that exchange rate shock had negative effect on FDI in the countries but insignificant. The result on GDPGR revealed that the effect is only positive in South Africa but insignificant in both economies. For IMPORTR and EXPORTR, the effect is positive in all the zones but significant only in Nigeria. For INFR, the effect is significantly positive in South Africa at 5% significant level but insignificantly negative in Nigeria. Impulse response result revealed that in Nigeria and South Africa, all the variables were negatively sensitive to exchange rate shock but temporal except INFR that was positive and permanent in South Africa. However, the variance decomposition function for the zones revealed that apart from own shock, exchange rate shock had relatively high contributions to variations in IMPORTR, EXPORTR, and INFR in Nigeria. Also, in South Africa, exchange rate shock contributed the largest variations in EXPORTR and INFR. Based on the findings, this study concludes that the macroeconomic variables of the countries are sensitive to exchange rate shock more in the short run but undecided in the long run. Moreover, the permanent response of INFR to exchange rate shock in South Africa calls for serious attention by the regulatory authorities in this economy. Therefore, this study recommends that conscientious effort be made by policy makers in ensuring exchange rate management in the zones for better performance of the macroeconomic variables.
 
 JEL: F31, F41, N1, N10, N17
 
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Highlights
In developed and emerging nations, it is impossible to overstate the efficacy of a stable exchange rate in attaining macroeconomic goals
Exchange rate is one of the macroeconomic variables that scholars, academicians, policy makers to mention but a few, have sought to place findings on due to the role it plays in determining economic activities of nations of the world
From the results obtained, the study concludes that the macroeconomic variables are sensitive to innovations to exchange rate across the zones
Summary
In developed and emerging nations, it is impossible to overstate the efficacy of a stable exchange rate in attaining macroeconomic goals. Every free market economy in the world relies on the rate of exchange to determine its level of trade, which is crucial in the economic integration process. The rate of exchange of currencies among countries of the world is one of the major closely monitored, examined, and manipulated macroeconomic indicators by governments (Ngerebo and Ibe, 2013; Vidyavathi, Keerti, and Pooja, 2016). Exchange rates are what allow you to compare the prices of goods, services, and assets in different currencies from different nations. The exchange rate is one of the determinants used to evaluate an economy's performance. A perfectly viable economy is portrayed in a strong and viable exchange rate
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