The Relative Impacts of Real Exchange Rate Misalignment and Real Exchange Rate Volatility on Export Growth in South Africa

Abstract

This research empirically analyses the relative impacts of real exchange rate misalignment and real exchange rate volatility on export growth in South Africa. The sample period for the study spans from 2000:2 to 2011:4. The degree of real exchange rate misalignment is computed as a deviation of the actual real exchange rate from its equilibrium using a single-equation error correction approach, while volatility is computed using the GARCH technique. The relative impacts of real exchange rate misalignment and real exchange rate volatility are investigated using the one-step Engle-Granger error correction model (ECM). Results indicate that both real exchange rate misalignment and real exchange rate volatility have adverse impacts on export growth; with real exchange rate volatility demonstrating more pronounced detrimental impacts on export growth relative to exchange rate misalignment, both in the short-run and long-run periods.

Keywords: real exchange rate misalignment, real exchange rate volatility, export growth