The Consequences of Policy Uncertainty: Disconnects and Dilutions in the South African Real Effective Exchange Rate-Export Relationship
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Summary:
In recent years, the link between the real effective exchange rate (REER) and exports in South Africa has weakened. While exports still rise in response to REER depreciations, the REER-export elasticity is below historical estimates. The literature has put forward a number of possible explanations, from multi-national supply-chains to muted exchange rate pass-through. This research explores the role of policy uncertainty in reducing the responsiveness of exports to relative price changes. We construct a novel “news chatter” measure of policy uncertainty and examine how it, paired with other supply-side constraints, can improve our understanding of export performance. We find that increased policy uncertainty diminishes the responsiveness of exports to the REER and has short and long-run level effects on export performance. Finally, we show that a measure of competitiveness that adjusts for uncertainty and supply-side constraints greatly outperforms the REER in tracking exports performance.
Series:
Working Paper No. 2016/113
Subject:
Commodities Electricity Export performance Export prices Exports Foreign exchange International trade Prices Real effective exchange rates
English
Publication Date:
June 9, 2016
ISBN/ISSN:
9781484383490/1018-5941
Stock No:
WPIEA2016113
Pages:
30
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