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Commodity prices and exchange rate volatility: Lessons from South Africa's capital account liberalization |
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| Institution: | 1. IMF Research Department International Monetary Fund, 700 19th St NW, Washington, DC 20431, USA;2. EconomiX, Université Paris Ouest-Nanterre, France;3. University of Jena, Germany;4. IMF Institute for Capacity Development, USA;5. University of Stellenbosch, South Africa;1. School of Accounting, Economics and Finance, Deakin University, Melbourne, Australia;2. School of Economics, Finance and Marketing, RMIT University, Melbourne, Australia;1. Bank of France, CEPII, France;2. EconomiX-CNRS, University of Paris Ouest, France |
| Abstract: | We examine the relationship between the South African Rand and the gold price volatility using monthly data for the period 1979–2010. Our main finding is that prior to capital account liberalization the causality runs from the South African Rand to the gold price volatility but the causality runs the other way around for the post-liberalization period. This finding suggests 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. |
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