- Title
- The impact of different exchange-rate policies on SADC economies
- Creator
- Qabhobho, Thobekile
- Subject
- Southern African Development Community -- Economic conditions
- Subject
- Foreign exchange rates International economic relations Developing countries -- Economic policy
- Date Issued
- 2017
- Date
- 2017
- Type
- Thesis
- Type
- Doctoral
- Type
- DPhil
- Identifier
- http://hdl.handle.net/10948/19883
- Identifier
- vital:28996
- Description
- An exchange-rate regime is an essential element of a country’s regional and international trade, since it is the monetary link between its domestic and international economy. Appropriate exchange-rate regimes that would facilitate capital flows, trade, Foreign Direct Investment (FDI) and economic growth need to be identified and researched within the Southern Africa Development Community (SADC). This study investigated five underlying themes on exchange-rate regimes, behaviour and monetary policy-related issues in the SADC region: the different exchange-rate regimes’ performance and features – before, during and after the 2007/2008 financial crisis; the implication of the adopted exchange-rate regime on monetary-policy independence through examining the impact of the U.S. interest rate on domestic interest rates; the transmission of the South African exchange-rate volatility to other SADC currencies during and after the 2007/2008 financial crisis; the relationship between the exchange-market pressure and monetary policy, and the relationship between exchange rates and stock prices. The following models were used to address the identified themes: the Exchange-Flexibility Index; the Regression-Based Model; the General Methods of Moments (GMM) Model; the GARCH (p, q) Model; the Exponential GARCH Model; the VAR framework, and the Granger-Causality Tests in the VAR System, with their Impulse Response Functions (IRF) and Variance Decomposition. These models were applied to cover different aspects of the study before, during and after the 2007/ 2008 financial-crisis periods. They enabled critical evaluation of the exchange-rate policies, behaviours and performances. The results of the thesis indicate that, in general, both fixed and flexible exchange rates became more flexible after the crisis period and the influence of the United States (U.S.) Dollar, Chinese RMB and EURO was affirmed. There was no evidence of an increase in the co-ordination of SADC currency arrangements in the post-crisis period. Countries with a fixed exchange-rate regime responded more to international interest rates. The study further confirmed the presence of the Rand volatility-contagion effect during the crisis period, as well as its spill-over effect during tranquil periods, to most currency markets in the region. The evaluation of the relationship between the Exchange-Market Pressure (EMP) and monetary policy relationship revealed their close interdependence. This confirms traditional theories that a tighter monetary policy reduces the EMP. The portfolio theory was further affirmed in that stock prices Granger-cause the exchange rates. The recommendations emanating from this study include modernisation of the financial systems of SADC states to cope with foreign capital flows and external shocks, especially since global and regional economies are intensifying, as well as deepening of financial regulations and supervision of financial systems. Furthermore, there is a need for governments and central banks to synchronise their economic policies to minimise the negative effect of global financial crises. The fixed exchange rate regimes and intermediate regimes proved more suitable to countries with less exposure to global capital markets. However, they should prepare their financial institutions to cope with the transition from peg arrangements to more flexible exchange rate regimes. Countries are more appealing if they have more advanced financial markets, links to global capital markets and flexible exchange rate regimes. SADC countries will eventually engage in full global financial integration because of the intensification of global financial markets. This will require the countries to adopt exchange-rate stability and financial integration, but sacrifice monetary autonomy; alternatively, they could achieve monetary independence with financial integration, but sacrifice exchange-rate stability. The results clarify that currency exchange shocks in one country can cause a persistent rise in the volatility of other countries’ foreign exchange markets. These results show that the Central Banks in SADC countries will need to take policy actions following a large exchange rate shock. Therefore, the results on the exchange-rate volatility theme are useful for policy makers to formulate and implement appropriate policies in the event an adverse shock is observed in SADC exchange markets where contagion/spill over effect is empirically manifested. Even though a rise in short-term interest rates could reduce the EMP, it could also further raise the fluctuations of short-term interest rates. Stabilising the EMP through manipulating short-term interest rates will often heighten volatility of interest rates for an extended period. The assumption that changes in the exchange rate affect the competitiveness of a firm, thus influencing the firm’s earnings, net worth, and stock prices was not supported by the results of this study for the period under analysis. However, the results concur with the portfolio theory that stock prices Granger-cause the exchange rates. This might mean that there is high movement of investors’ money between the South African stock markets and that of other countries. This will have significant influence on the demand for and supply of the South African Rand, which often is in disequilibrium. The policy implication is that the Central Bank should pay more attention to stabilising exchange rates against the major currencies. The results of this study have critical implications for monetary authorities (Central Banks) and decision-makers in business.
- Format
- xix, 226 leaves
- Format
- Publisher
- Nelson Mandela University
- Publisher
- Faculty of Business and Economic Sciences
- Language
- English
- Rights
- Nelson Mandela University
- Hits: 1459
- Visitors: 1637
- Downloads: 453
Collections
NMU School for Economics, Development and Tourism
| Thumbnail | File | Description | Size | Format | |||
|---|---|---|---|---|---|---|---|
| View Details Download | SOURCE1 | The impact of different exchange-rate policies on SADC economies | 2 MB | Adobe Acrobat PDF | View Details Download |