This survey will analyze the relationship between Capital Flows into and out of South Africa and the alterations in the Rand ( ZAR ) noun phrase and existent exchange rates with her trading spouses. The ultimate purpose of the survey will be to place what factors within Capital Flows are relevant taking indexs in ZAR nominal and existent exchange rate fluctuations.

Research Question & A ; Scope

Research Premises

Research Ethical motives

Literature Review

Extensive research has been conducted on Capital Flows and their follow on effects on assorted factors within the economic system as a whole – in peculiar how these shape hereafter alterations in economic basicss every bit good as exchange rates, every bit good as conversely being shaped themselves by these same basicss.

Herewith we dissect a figure of these statements in patching together the nature of determiners of capital flows into and out of an economic system, with the ultimate purpose of constructing a principle for the apprehension and prediction of fluctuations in the ZAR nominal and existent exchange rates.

Policy Changes:

Capital history liberalization and the double aims of pull offing rising prices every bit good as nominal exchange rate marks.

( Aron & A ; Elbadawi, 1999 )

Feb – Jul 1996: “ Investor uncertainness about economic policy originating from perceived differences within the authorities, and besides between the authorities and other cardinal interest holders ( e.g. COSATU ) , due to the inherently7 conflicting policy marks and instruments between the short- and longer run, and between the existent and fiscal sectors of the economic system. ”

Oct 1996 & A ; Nov 1997: “ triggered mostly by contagious disease effects from the Asiatic crisis ( and besides falls in the monetary value of gold and other metals ) ”

April 1998:

Paper Focus:

“ direction of capital influxs to South Africa after the elections, and the policy effects ”

“ use a “ 2nd coevals ” theoretical theoretical account of currency crises due to Agenor and Masson ( forthcoming ) aˆ¦ . tradeoff between bracing the currency and keeping mark involvement rates in the face of a daze to militias ( in this instance, through pull offing increased influxs ) . ”

“ Empirical consequences suggest the importance of both economic basicss and policy credibleness in the formation of private sector devaluation outlooks prior to the crisis. ”

One of Rerves Bank ‘s major policy aims, during the station electoral period ( April, 1994 ) until the crisis of 1996, was the stabilization of the nominal exchange rate ;

In the runup to democratization in South Africa, “ despite borrowing from the IMF and significantly increasing other short-run foreign adoption, the Reserve Bank was unable to forestall a nominal effectual depreciation of stopping point to 19 % between January, 1993 and the terminal of July, 1994 ( existent depreciation was about 10 per centum ) .

Post election, “ capital influxs resumed strongly, and at that place was heavy intercession in the market to forestall grasp of the rand ” , and over the resulting 21month period the bilateral ZAR: USD rate moved by no more than 2 %

Exchange control factors relaxed – March ’95 Unification of the double exchange rate system, runing since the 60s

The gradual remotion of exchange controls exposed the Reserve Bank open to “ guess on the timing of liberalization ”

SA ‘s two sided policy of commanding rising prices and nominal exchange rate stableness, could merely be possible in an environment without big alterations in capital flows, otherwise a tradeoff between the aims would be necessary.

The guarantee the double aims were being met Reserve Bank needed to steralise these foreign capital influxs, and the consequence they would hold in the expansionary pecuniary base of the state ( Internet Explorer: an addition in rising prices )

Through extra fortunes playing out through influential gold manufacturers and banking sector participants, it became clear that the modesty bank would be unable to prolong this lasting alteration in capital flows ( see Calvo et Al, 1993 ) .

“ The financial costs of a drawn-out sterilization can be prohibitory, and as the market becomes saturated with bonds, higher involvement rates are required to carry investors to keep new bonds. Furthermore, new bad influxs in response to the even more favorable involvement derived function could so worsen the job. Even if the ensuing financial cost was borne for a clip, finally the degree of involvement rates would so far exceed the mark rates that the ensuing contraction in end product would coerce forsaking of the exchange rate mark ( e.g. the U.K. instance in 1992, see Masson, 1995 ) . ”

Mechanisms utilised by the Reserve Bank clearly were non in line with the policy and government alterations that were taking topographic point within South Africa at the clip, and the response of the RB was more appropriate in covering with impermanent capital flow alterations, non, as it became evident, with big scale liberalizations to trading and exchange rate policy alterations – which would necessarily do increased in inward capital flows.

“ ..fully liberalizing the capital history to influxs can quickly expose the existent economic system to monolithic volatility, even with its comparatively severe macroeconomic policies and deeper and more sophisticated fiscal markets. Furthermore, private capital flows can take to existent exchange rate overestimate, and hence a derailment off the way toward dynamic export-lead growing. ”

ASGISA ( Accelerated and Shared Growth Initiative )

( Boshoff, 2008 )

ASGISA is a set of programs aimed at long term economic growing. A portion of these programs is placing certain “ restraints ” curtailing growing – one of which is the “ degree and volatility ” of the currency. Through this logic, advocates argue that a weaker rand will excite growing within export-oriented sectors, while at the same clip hiking Foreign Direct Investment ( FDI ) .

However, a weaker rand is less likely to bring forth sustainable betterment in either export-oriented industries or FDI in the absence of other reforms

There is no general co-movement between the SA economic system and the rand ;

[ Could at that place be a lead/lag correlativity between economic end product and the degree of the Rand? ]

“ A weaker rand is non a Panacea – and exchange rate targeting is hard ”

“ it could be argued that a weaker currency is of import to export public presentation and may besides hike FDI ”

“ if it is the authorities ‘s purpose to raise FDI or to hike export public presentation, it is the regulative environment, and non needfully the rand, that requires policy attending ”

“ if policymakers are truly concerned about the volatility of the currency, it is indispensable to cut down policy uncertainness ”

ASGISA short-sightedly trying to nail down the ZAR to a preset equilibrium degree ; sing SARB ‘s ( and other emergent states ‘ cardinal Bankss ) recent history around failed direction of the ZAR through the crises of the late 90 ‘s and early 2000 ‘s. Further to this, Du Toit et Al. ( 2002, as cited in Boshoff, 2008 ) argue that through actively pull offing the ZAR, governments may do extra fiscal market uncertainness every bit good as longer term hardships. Ultimately though pull stringsing the ZAR, as mandated though ASGISA, “ policy-makers assume that they ‘know ‘ the equilibrium value of the exchange rate ”

Average Reversion:

( Akinboade, O.A. & A ; Makina, 2006 )

Real exchange rates

Real rate interruptions and reversion

Ratess and PPP


Events holding potency of making structural interruption in the state

1983: February

Fiscal rand abolished


The legalisation of black trade brotherhood motion in the state


United Nations resolved to enforce economic countenances on the state

1985: August

Impermanent closing of foreign exchange market

1985: September

South Africa imposed a system of exchange control and debt refund deadlock


USA and Britain imposed economic countenances on South Africa. Large corporations disinvested from South Africa


Emigration of white professionals increased

1986: March

Interim agreements with regard to certain debt refunds were concluded with bank creditors.


The agreements are to be effectual until June 1987

1986: June

State of exigency declared in order to cover with political crisis

1990: February

Release of Nelson Mandela

1992: March

The last Whites merely referendum approved bulk regulation

1992: December

Most of the countenances imposed on South Africa were lifted

1994: April

First democratic election, showing in the African National Congress

1995: March

Fusion of the double exchange rate of the rand


Russia debt crisis and the first Rand crisis

1998: May

Concerns about the possibility of higher U.S. involvement rates and the effects of the go oning economic crisis in Asia weighed on the market

1998: June

Net unfastened forward place increased from $ 12.8 billion in April to $ 22.5 billion in June

1998: July

Former Labour Minister Tito Mboweni was appointed the state ‘s following cardinal bank governor, replacing Chris Stals in August 1999


The rand plummeted by 37 % against the US dollar under 5 months. By December the rand plummeted on norm by 20 % against the US dollar

1999: April

Second democratic election, The African National Congress consolidates it bulk in parliament

2001: November/ December

The Rand plunged by 40 % against cardinal exchangeable currencies making 13.86 against the dollar. The rand became the universe ‘s 2nd worst executing currency in 2001, surpassed merely by Argentina

Productiveness Dazes:

( Bailey, A.J. & A ; Millard, S & A ; Wells, 2001 )

What is the possible function of capital flows in explicating exchange rate motions?

Suggested that increased capital flows, perchance due to increased productiveness and lifting return on capital, into the USA has led to a nominal and existent grasp in the US Dollar ( USD ) .

Suggestion is that the complex nature of the interplay between alterations in nominal and existent exchange rates, involvement rates, equity monetary values and the current/capital history balance, is dependent on the “ daze ” hitting the economic system ;

Productivity “ dazes ” taking to an addition in end product would take to additions in capital influxs through adoptions from abroad to fuel additions in domestic ingestion ( due to future expected income additions ) , every bit good as through increased equity and direct investing flows ( due to future expected net incomes ) .

On Real Exchange Ratess:

By understanding the construct of exposed involvement para ( UIP ) , we see that expected alterations in existent exchange rates within a period will be differences among domestic existent involvement rates and those of the remainder of the universe.

Under UIP we would anticipate a productiveness daze, matching with temporarily raised productiveness growing, taking to grasp of the domestic existent involvement rates relative to universe existent involvement rate, which in bend would do an grasp in existent exchange rates ;

Under this rationale – Bailey, Milliard & A ; Wells province that the effects of this grasp in existent exchange rate would return to tendency one time the productiveness besides returned to tendency ; nevertheless sustained productiveness dazes would ensuing a long term grasp in existent exchange rates.

Distinguishing between the type of productiveness dazes is of import in finding the expected alterations to existent exchange rates:

Coincident, equal, dazes in tradable and non-tradable sectors would in fact lead to a depreciation in the equilibrium existent exchange rate ;

In contrast, dazes focused chiefly in the tradable sector will do an addition in the equilibrium existent exchange rate.

On Nominal Exchange Ratess:

In the theoretical account, we shall presume domestic and universe pecuniary policy have the same mark rising prices rates: –

If similar production dazes occurred with pecuniary governments absorbing the daze, we would anticipate the nominal exchange rate to travel in the same way and magnitude as existent exchange rate. However, if the same authorization did non move, rising prices effects would do the nominal exchange rate to lift comparative to the existent exchange rate.

A conventional UIP statement would propose that a productiveness daze will take to an immediate grasp of the existent exchange rate, followed by depreciation back to its equilibrium degree as productiveness growing returns to its tendency rate. If we assume that it takes clip for economic agents to gain that the addition in productiveness is structural instead than strictly cyclical, we can widen the period over which the existent exchange rate appreciates before it finally depreciates. If we assume that the productiveness daze is spread equally across the tradable and non-tradable sectors, so the equilibrium existent exchange rates will-other things equal-depreciate, because such a daze implies an addition in the comparative supply of domestic goods and a autumn in their comparative monetary value.

Contagion & A ; Crisiss:

( Fedderke, 2004 )

In analyzing the ZAR currency crises of ’97-’99 ; Fedderke ( 2004 ) , argues that South Africa was capable to “ pure contagious disease ” in both the exchange rate and equity market depreciations. This is in contrast to other developing states who suffered similar depreciations, which were by and large triggered by a scenario of “ shift contagious disease ” , where the inter-connectedness of economic systems affected had a knock-on contagious disease consequence on their trading spouses and close geographic neighbors.

The South African experience of the East Asian triggered crisis is through the effects of “ pure contagious disease ” , which we denote crisis extension that is transferred between markets even in the absence of existent links between the markets.

Since the unravelling events started in Thailand, had no evident connexion, existent or fiscal, still had a contagious disease consequence on South Africa ( and a figure of other developing economic systems ) ; Fedderke ( 2004 ) raised a pertinent inquiry of how/if policy alterations in South Africa, at the clip, or in expectancy of such an event would control the consequence of the contagious disease? Furthermore, in what manner would such a concatenation of events lead to a alteration ( or daze ) in capital flows into and out of South Africa? Look more into the FPI outflows vs FDI flows for the same period – basicss would ‘ve been unchanged – yet speculation/fear in the market may worsen capital flight

Order Flow:

“ Order flow is defined as the cyberspace of buyer-initiated and seller-initiated orders ; it is a step of net purchasing force per unit area ” ( Evans & A ; Lyons, 2002 )

Within the definition of order flows, Froot & A ; Ramadorai ( 2002 ) place three positions of of the effects of investor flows, viz. :

Strong Flow-centric: Where investor flows have lasting impacts on the exchange rate

“ ..permanent exchange-rate returns are basically unrelated to lasting steps of flow. So the strong flow-centric position, which has flows bring forthing lasting exchange rate impacts, potentially even proxying for cumulated inventions in future basicss, is rejected ” Froot & A ; Ramadorai ( 2002 )

Weak Flow-centric: Where “ institutional flows contain information about divergences from cardinal values, instead than about basicss per Se, and hence have merely impermanent monetary value consequence ”

“ Flows seem to assist understand ephemeral extra returns, e.g. , short-term underreaction and long-term overreaction, non lasting extra returns. As a consequence, the evi- dence seems most to suit the weak version of the flow-centric position ” Froot & A ; Ramadorai ( 2002 )

Fundamentalss Merely: Where “ flows have no ability to foretell future exchange rates or future inventions in expected hereafter basicss ” , and that flows may happen as a inactive response to cardinal information.

“ ..the relationship between flows and basicss is perceptibly weaker. There is some grounds that over short periods of clip, influxs anticipate future betterments in basicss. Besides that, nevertheless, there is basically no grounds that flows and basicss move together even at long leads and slowdowns. Puting these pieces together, it is clear that we find no support for a strong flow-centric position. ” Froot & A ; Ramadorai ( 2002 )

“ We besides find support for the fundamentals-only position at long skylines. There, basicss win out in explicating currencies, and flows have small impact. ” Froot & A ; Ramadorai ( 2002 )

( Cai, Cheung, Lee, & A ; Melvin, 2001 )

Using the unexpected volatility in the Nipponese Yen ( JPY ) against the USD in 1998 as an illustration ; where the JPY appreciated by 10 % against the USD in one yearss trading, traveling against many months of depreciation. Cheung, Lee and Melvin ( 2001 ) argue, along with many analysts at that clip, that this sudden and important reversal in lucks for the JPY was due, in big portion, to portfolio place alterations ( in the unwinding of “ yen-carry ” places ) of big establishments.

The Southern Cross of the statement is that the sudden grasp in the JPY was non due to alterations in underlying economic basicss, information of which would hold been freely available to the market ; yet mostly through the transmittal of order flows information through inter-institutional trading activity ( taking to irregular information airing in the market ) . Through this illustration, one can deduce that it is therefore wholly possible for institutional bargainers to consequence intraday exchange rates ; with the understanding that exchange rates will return back to the mean ( average reversion ref! ! ! ) since economic basicss have non changed. Menkoff ( 1998 ) , Cheung & A ; Chinn ( 2000 ) , Cheung & A ; Wong ( 1999 ) and Cheung, Chinn, & A ; Marsh ( 1999 ) , all cited in Cai et Al. ( 2001 ) and Froot & A ; Ramadorai ( 2002 ) all show that this is a normally held belief among FX professionals, that it is possible for big trading establishments to temporarily ‘make ‘ the exchange rate through proprietary and client trading, due to big order-flow effects on the market, or through asymmetrical entree to information via client or institutional webs, and are in no manner determined by the current implicit in basicss. These real-world patterns align thoughts on Order Flow with Meese & A ; Rogoff ‘s ( 1983 ) averments that current, mensural basicss are unequal for the account of said fluctuations.

Continuing with the JPY illustration, Cai et Al. ( 2008 ) conclude that order flows are a major subscriber to volatility, with the driving principle that order flows convey information non merely approximately presently available macroeconomic intelligence, but besides independent information sing “ outlooks of future alterations in basicss or revised outlooks due to institutional alterations ”

Evans & A ; Lyons ( 2002 ) , provide two types of information that is conveyed through order flows, in that they reflect new information about rating:

Numerators ( i.e. , future involvement derived functions ) .

Denominators ( i.e. , anything that affects price reduction rates ) , which may be determined as “ dazes to liquidness demands, dazes to fudging demands, or time-varying hazard tolerance ” , confirming Cai et Al ‘s ( 2008 ) averments on information sing “ revised outlooks ” through order flow.

Beyond the Cai et Al. ( 2008 ) findings on CAD: USD exchange rates ; Froot & A ; Ramadorai ( 2002 ) , find that a strong explanatory relationship exists between investor flows ( Internet Explorer: FPI and/or Order Flows ) and short term exchange rate fluctuations.

Best Oder Flow Piece

“ Recently, positive exchange rate theory has advanced largely outside the range of traditional macroeconomic theory, plagued with its notoriously hapless empirical public presentation ( Meese and Rogoff ( 1983a, 1983b ) ) and with widespread pessimism about the explanatory power of macro variables in general. The empirical microstructure literature has examined the function of foreign exchange order flow defined as the difference between bargain and sell orders. Evans and Lyons ( 2001a, B ) , Lyons ( 2001 ) , Rime ( 2001 ) , Killeen et Al. ( 2001 ) , and Hau et Al. ( 2001 ) show that order flow from electronic trading systems have unusually high correlativity with contemporary exchange rate alterations. These empirical consequences have been established both for inter-dealer order flow and for customer-dealer order flow. Since customer-dealer order flow in the foreign exchange market is at least partially determined by investors ‘ desires for portfolio displacements, these consequences suggest an of import linkage between exchange rate kineticss and investor behavior. The most comprehensive order flow informations are owned by planetary keepers like State Street, which undertake a big proportion of planetary equity uncluttering. Such ( proprietary ) informations have been analyzed by Froot et Al. ( 2001 ) and Froot and Ramadorai ( 2002 ) . The consequences show that the impact of investor order flow on the exchange rate is really relentless and extremums at skylines of about a month for major currencies. But the order flow exchange rate linkage has non yet been imbedded in a theoretical model in which order flow is derived from international investing behaviour. ” ( Hau & A ; Rey, 2002 )

Hau & A ; Rey ( 2002 ) finally deduce that “ the full exchange rate kineticss is hence based entirely on the fiscal market construction as opposed to traditional macroeconomic determiners. ”

Within the South African context, effects of order flow could be a sensible determiner of the Rand Crisis of 2002. LiPuma & A ; Koelble ( 2009 ) , that the crisis was basically brought approximately through the “ structural status of liberalized planetary markets ” whereby “ bad capital ” ( by manner of order flows ) , can impact upon a “ state ‘s cross-currency rates independent of the province of that state ‘s ‘real ‘ economic system ” . LiPuma & A ; Koelble ( 2009 ) averments

Challenging Existing Models

( Cushman, 2000 ) , ( Flood, R.P. & A ; Rose, 1997 ) , ( Meese R. & A ; Rogoff, 1983 ) , ( De Jong, 1997 ) , ( Fedderke & A ; Flamand, 2005 ) , De Arcangelis & A ; Gandolfo ( 1996 )

“ Standard pecuniary exchange rate theoretical account assumes that the basicss of money supply and demand drive the exchange rate through the buying power para relationship [ PPP ] ” . However, Cushman ( 2000 ) shows that there is a distinguishable deficiency of supportive informations to demo that Johansen ‘s ( 1991, cited in Cushman, 2000 ) pecuniary exchange rate theoretical account has non been applicable since the early 70 ‘s ( sing the USD: CAD exchange rate ) .

Cushman ( 2000 ) , by foregrounding the irrelevancy of pecuniary theoretical accounts in explicating currency fluctuations since the early 70 ‘s, confirm the averments of Flood & A ; Rose ( 1997 ) , about these same theoretical accounts ‘ ineffectualness in explicating exchange rate fluctuations since the disintegration of the Bretton Woods system of fixed exchange rates.

Along with Cushman ( 2000 ) , Rose & A ; Flood ( 1997 ) , Meese & A ; Rogoff ( 1983a, cited from De Jong ( 1997 ) ) , besides reject the pecuniary theoretical accounts account of how exchange rates come to equilibrium ; through surveies foregrounding a superior prognostic capableness of random walk over the usage of market cardinal information, in foretelling exchange rate motions. In mention to Flood & A ; Rose ( 1997 ) , we are shown that the being of high volatility in exchange rates is non normally correlated with a similar volatility in macroeconomic variables ( eg: involvement rates, comparative monetary values, money, militias, and stock returns ) . Ultimately, Flood & A ; Rose ( 1997 ) suggest that in order to explicate exchange rate fluctuations, farther survey should turn away from analyzing macroeconomic informations, and concentrate more on microeconomic factors ( eg: Cai et al. , 2001 and Evans & A ; Lyons, 2002, proposals on Order Flow )

Fedderke & A ; Flamand ( 2005 ) , disagree with traditional equilibrium theoretical accounts ‘ pertinence to emergent markets, with their inherently more volatile currency environments, every bit good as their inappropriate utilizations in explicating short term volatility. Fedderke & A ; Flamand ( 2005 ) besides show how efficient market hypotheses do non keep true in the context of short term ZAR fluctuations.

De Jong ( 1997 ) does nevertheless propose that through a longer term analyses theoretical accounts based on macroeconomic variables outperform the random walk ; mentioning De Arcangelis & A ; Gandolfo ‘s ( 1996 ) statement that “ Economic theory, right used, is utile. ” ” It is with De Jong ‘s logic that through the usage of right usage of macroeconomic basicss informations that one will be able to measure whether, and how capital flows will impact exchange rate fluctuations.

The Case for Fundamentalss

( Frankel, 2007 )

Frankel ( 2007 ) poses the inquiry that the ZAR could be a trade good currency, similar to that of the CAD and AUD, which are both capable to mineral monetary values ; or whether the ZAR has a similar behavior to other developed states ‘ currencies ( where he asserts are influenced by GDP and rates of return* ) ?

The survey reveals that fluctuations in ZAR do look to be positively correlated ;

[ Rate of Return = Domestic Risk Free Rate – Domestic Inflation – Foreign Inflation ]

Bringing It All Together

In the Short-run

In the Long-run

Exchange Rate Models ( Definitions )

Equilibrium Models

All the following equilibrium based attacks assert that exchange rate is the result of equilibrium relationships that hold true in the long tally ; nevertheless, through empirical observation, they fail to foreground any important relationship in explicating short-run, “ dynamic ” motions in exchange rate. ( Fedderke & A ; Flamand, 2005 ) . Fedderke & A ; Flamand ( 2005 ) travel on to province that in explicating exchange rate fluctuations in extremely volatile emergent market currencies, sing the length of clip needed for these equilibrium type attacks to keep true, would non be applicable.

PPP ( buying power para ) :

“ Goods market arbitrage equalizes transverse boundary line monetary values ( expressed in the same currency ) of many goods, so that there will be a high correlativity between aggregative monetary value degrees ; ” ( De Jong, 1997 )

UIP ( exposed involvement para )

FEER ( cardinal equilibrium exchange rate theory )

Efficient Market Hypothesis:

Fedderke & A ; Flamand ( 2005 ) propose the airing of information through currency markets provide a important factor in explicating short-run currency fluctuations.

Specifically sing the ZAR, Fedderke & A ; Flamand ( 2005 ) show that intelligence arising from the US markets have a far greater impact in the ZAR than local intelligence. However, analyses shown in this survey show that ‘digestion ‘ of new information is merely reflected on mean 72hours after going public – projecting uncertainty on whether efficient market theoretical accounts are valid in the context of short term ZAR fluctuations ;


“ Since the mid-1970s, the plus market attack is the dominant position on exchange-rate finding. The bulk of documents that test a version of this attack use the semi- or quasi-reduced signifier for gauging the relation between the exchange rate and other macroeconomic variables. This process can be illustrated by agencies of a simple version of the plus market attack, viz. the flexible monetary value pecuniary theoretical account ” ( De Jong, 1997 )

Monetary Approach

“ Monetary theoretical accounts of the exchange rate imply that stabilisation of the exchange rate is achieved at the cost of a more volatile money supply ” ( Flood, R.P. & A ; Rose, 1997 )

“ The tradeoff between exchange rate volatility and money supply volatility should be more evident for narrower constructs of money such as the pecuniary base, or so international militias ” Stockman ( 1983, cited in Flood & A ; Rose, 1997 )

Portfolio Balance Approach

This is closely tied with theories on order flow finding impermanent fluctuations in exchange rate, through the mechanisms underlined by the weak flow centric theoretical account covered by Froot & A ; Ramadorai ( 2002 ) .

Hau & A ; Rey ( 2004 ) on the subeject of portfolio rebalancing ( Internet Explorer: investment/order flows ) , trial for a relationships

Research Methodology

Research Approach & A ; Strategy

Research Design, Data Collection Methods and Research Instruments

Data / Variables:

External Capital Flows:

Portfolio Flows:


Relative Stock Returns

Growth Expectations

Interest rate derived functions

Current history balance

Indexs of Financial Market Structures:

Openness Variable, by utilizing the consequence of [ Imports + Export ] / GDP, we will be able to measure the degree to which the domestic market is exposed ( unfastened ) to planetary markets as a per centum of GDP ;

Indication to the deepness of domestic recognition markets, which show a more incorporate, accessible market. For this we could utilize the M3 index of money in the economic system.

DUMMY Variables:

Productiveness Dazes

Political Dazes

Policy Changes:



Surprise News

Currency Crisis


Stationarity trial

Granger Causality


Assorted datasets will be collected through the publicly accessible resources provided by the South African Reserve Bank ( SARB ) . Raw information will consist of:

Daily exchange informations for ZAR against: USD, GBP, AUD, EUR and CAD

Although Australia and Canada are minor merchandising spouses of South Africa ( comparative to UK, EU and USA ) ; they have been referred to as “ Commodity Currencies ” by Frankel ( 2007 ) , where these exchange rates are to a great extent influenced by current monetary values of mineral resources. Although Frankel ( 2007 ) merely mentions the mechanisms of trade good currencies in brief, it will be possible, and within the range of the research to foreground the current nature of the ZAR.

Capital Flows information? ? ? ?

Interest Rate informations

Growth prognosiss

Current Account balances

Openness Variable


Research Criteria

Data Analysis Methods

Variance decomposition theoretical account, where supposed determiners ( X1i? Xn ) of capital flows ( K ) are ( Granger cause or multiple correlativities? ) . Subsequently we perform a trial for Granger Causality on variables K ( capital flows ) , such that fluctuations in K ( I”K ) could be determined to be a cause of fluctuations in exchange rate ( I”Y ) . Ultimately, our construct is to find whether a causal relationship exists between fluctuations in the most important implicit in determiners of Capital Flows, and fluctuations in the domestic exchange rate ( nominal or existent? )


Research Plan