Commodity Prices and Exchange Rate Volatility: Lessons from South Africa’s Capital Account Liberalization

By Elena Dumitrescu, Rabah Arezki, Andreas Freytag, Marc G Quintyn

June 1, 2012

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Elena Dumitrescu, Rabah Arezki, Andreas Freytag, and Marc G Quintyn. Commodity Prices and Exchange Rate Volatility: Lessons from South Africa’s Capital Account Liberalization, (USA: International Monetary Fund, 2012) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We examine the relationship between South African Rand and gold price volatility using monthly data for the period 1980-2010. Our main findings is that prior to capital account liberalization the causality runs from South African Rand to gold price volatility but the causality runs the other way around for the post-liberalization period. These findings suggest that gold price volatility plays a key role in explaining both the excessive exchange rate volatility and current disproportionate share of speculative (short-run) inflows that South Africa has been coping with since the opening up of its capital account.

Subject: Balance of payments, Capital account liberalization, Commodity price fluctuations, Foreign exchange, Gold prices, Prices, Real effective exchange rates, Real exchange rates

Keywords: Africa, Capital account liberalization, Commodities, Commodity, Commodity price fluctuations, Error correction term, Exchange rate, Exchange rate volatility, Export commodity price, Financial flows, Gold price data, Gold price volatility, Gold prices, Price, Price volatility, Real effective exchange rates, Real exchange rate, Real exchange rates, UNCTAD commodity statistics, Volatility, WP

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/168
Stock No:

WPIEA2012168
ISBN:

9781475505160
ISSN:

1018-5941

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