Abstract
The current study investigates the impact of the 2008 US financial crises on the real exchange rate in South Africa. The data used in this empirical analysis is for the period from January 2000 to June 2017. The Seasonal autoregressive integrated moving average (SARIMA) intervention charter was used to carry out the analysis. Results revealed that the financial crises period in South Africa occurred in March 2008 and significantly affected the exchange rate. Hence, the impact pattern was abrupt. Using the SARIMA model as a benchmark, four error metrics; to be precise mean absolute error (MAE), mean absolute percentage error (MAPE), mean error (ME) and Mean percentage error (MPE) was used to assess the performance of the intervention model and SARIMA model. The results of the SARIMA intervention model produced better forecasts as compared to that one of SARIMA model.
Highlights
The 2007-2008 worldwide financial crisis was an astonishing and multifaceted process
Results and Analysis of seasonal autoregressive integrated moving average (SARIMA) Model: The Augmented Dickey-Fuller (ADF) test is applied to the time series as the purpose to accommodate both the Box-Jenkins and intervention proposed in this study
The study has found that the SARIMA model with intervention out-performed the SARIMA model and the application of SARIMA intervention models is appropriate for explaining the dynamics and impact of interruptions and changes of time-series in a more detailed and precise manner
Summary
The 2007-2008 worldwide financial crisis was an astonishing and multifaceted process. According to Orlowski (2008), the financial crises came as a result of surplus liquidity of which the Federal Reserve Chairman Ben Bernanke had excess savings that were used in the worldwide financial markets as well as on mortgage markets in the United States (US). The second stage identified other types of assets that were covered by this crisis. This stage impacted mortgage companies and investment banks together with other banks worldwide. The third stage represented a colossal addendum of the liabilities from exposed banks which prompted the international liquidity crisis. This triggered anxiety about possible credit contagion as of the same risk on the universal scale. A zenith was reached in September 2008 with massive shifting of funds into risk-free securities, as Lehman Brothers filed for bankruptcy protection and US investment banking system faced its ultimate demise (Chung, Farrish and Wang, 2009)
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