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2017 | OriginalPaper | Chapter

23. Exchange Rate Depreciation, Risk and Exports: A Counterfactual VAR Approach

Authors : Eliphas Ndou, Nombulelo Gumata, Mthuli Ncube

Published in: Global Economic Uncertainties and Exchange Rate Shocks

Publisher: Springer International Publishing

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Abstract

This chapter quantifies the net effects of the real exchange rate depreciation after excluding the effects of the exchange rate risk and shows these differ according to certain assumptions. The analysis differentiates the effects when risk is expected, unexpected and the additional effects due to exports risk. Evidence shows that the percentage reduction in the cumulative exchange rate depreciation effects on exports growth vary according to whether risk is aggregated, permanent and transitory. Evidence shows that the exchange rate risk matters for the transmission of positive US economic policy uncertainty shocks to South African exports growth to the US. Furthermore, the interaction between the exchange rate depreciation and risk shows that the stimulatory depreciation effects are reduced much more in the presence of elevated exchange rate and exports risk. In addition, evidence shows that permanent exchange rate risk worsens the decline in exports following the US economic policy uncertainty shocks compared to transitory exchange rate risk.

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previous chapter Asymmetrical Real Exchange Rate Risk Effects on South African and US Exports Growth
next chapter South African Exporters and the Pricing-to-Market Strategy
Footnotes
1
A discretionary monetary policy assesses whether the depreciation leads to transitory or persistent inflationary pressures in the economy, may raise policy rates to dampen inflation.
 
2
Data is month-on-month changes (percent) and real exports refer to exports deflated by consumer prices.
 
3
The approach adopted here helps us to avoid using two price levels in the estimation.
 
4
The methodology employed in this analysis is discussed in this chapter, however, it can be availed at request.
 
Literature
Arize, A. C. (1996). Real exchange-rate volatility and trade flows: The experience of eight European economies. International Review of Economics and Finance, 5, 187–205.CrossRef
Baker, R.S., Bloom, N., Canes-Wrone, B., Davis, S. J., & Rodden, J. (2014). Why Has US Policy Uncertainty Risen since 1960? American Economic Review, American Economic Association, 104(5), 56–60.
De Grauwe, P. (1988). Exchange rate variability and the slowdown in the growth of international trade. IMF Staff Papers, 35, 63–84.CrossRef
Fang, W., & Thompson, H. (2004). Exchange rate risk and export revenue in Taiwan. Pacific Economic Review, 9(2), 117–129.CrossRef
Fang, W., & Miller, S. M. (2007). Exchange rate depreciation and exports: Case of Singapore revisited. Applied Economics, 39, 273–277.CrossRef
Fang, W., Lai, Y., & Thompson, H. (2007). Exchange rates, exchange rate risk, and Asian export revenue. International Review of Economics and Finance, 16(2), 237–254.CrossRef
Hlatshwayo, S., & Saxegaard, M. (2016). The Consequence of Policy Uncertainty: Disconnects and Dilutions in the South African Real Effective Exchange Rate-Export Relationship. IMF Working Paper WP/16/113.
Ncube, M., Gumata, N., & Ndou, E. (2016). Global Growth and Financial Spillovers and the South African Macro-economy. Plagrave Macmillan.
Metadata
Title
Exchange Rate Depreciation, Risk and Exports: A Counterfactual VAR Approach
Authors
Eliphas Ndou
Nombulelo Gumata
Mthuli Ncube
Copyright Year
2017
Book
Global Economic Uncertainties and Exchange Rate Shocks

Print ISBN: 978-3-319-62279-8

Electronic ISBN: 978-3-319-62280-4

Copyright Year: 2017

DOI
https://doi.org/10.1007/978-3-319-62280-4_23