TY  - JOUR
AU  - Frankel,Jeffrey
TI  - On the Rand: Determinants of the South African Exchange Rate
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13050
PY  - 2007
Y2  - April 2007
UR  - http://www.nber.org/papers/w13050
L1  - http://www.nber.org/papers/w13050.pdf
N1  - Author contact info:
Jeffrey A. Frankel
Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-3834
Fax: 617/496-5747
E-Mail: jeffrey_frankel@harvard.edu
AB  - This paper is an econometric investigation of the determinants of the real value of the South African rand over the period 1984-2006.    The results show a relatively good fit.   As so often with exchange rate equations, there is substantial weight on the lagged exchange rate, which can be attributed to a momentum component.     Nevertheless, economic fundamentals are significant and important.    This is especially true of an index of the real prices of South African mineral commodities, which even drives out real income as a significant determinant of the rand's value.   An implication is that the 2003-2006 real appreciation can be attributed to the Dutch Disease.     In other respects, the rand behaves like currencies of industrialized countries with well-developed financial markets.   In particular, high South African interest rates raise international demand for the rand and lead to real appreciation, controlling for a forward-looking measure of expected inflation and a measure of default risk or country risk.   It is in the latter respects, in particular, that the paper hopes to have improved on earlier studies of the rand.
ER  -