An application of the Mundell Fleming model in emerging market economies
- Authors: Tenderere, Morris
- Date: 2023-12
- Subjects: Macroeconomics , Foreign exchange rates , International economic relations
- Language: English
- Type: Doctoral theses , text
- Identifier: http://hdl.handle.net/10948/66039 , vital:74319
- Description: The core objective of this study was to test the applicability of the Mundell-Fleming model in emerging market economies. Despite its importance, no study has examined the applicability of the Mundell-Fleming model in emerging market economies, as far as this study is aware. The Mundell-Fleming model predicts that in an environment with freely floating exchange rates, a drop in interest rates will lead to capital flight, which in turn will result in a fall in the exchange rate and a rise in net exports. The model takes into account both the international flow of capital and the flow of goods and services that might have a big impact on the country. The model's theoretical foundations offer practical instruments for assessing the impact of economic policy in light of the adopted exchange rate regimes of a nation. The model plays a key role in anticipating the link between output, interest rates, and exchange rates. A quantitative approach using panel monthly data over the period 2000 to 2017 for five emerging countries was carried out. Brazil, Malaysia, China, India, and South Africa were the considered countries due to availability of data. The Dynamic Ordinary Least Square (DOLS) and Fully Modified Ordinary Least Square (FMOLS) were used to analyse the data. The study confirmed the applicability of the Mundell-Fleming model in the studied countries given a positive relationship between interest rate and portfolio investment. This result means that when interest rates rise, capital flows also increase. In addition, the confirmation of Mundell-Fleming model is reflected in the negative relationship between portfolio investment and the rate of exchange. The Mundell-Fleming model describes how movement of capital and exchange rates behave. The study recommended that to ease the threat of currency appreciation, the Central Banks in merging market economies must ensure that the domestic interest rate is always in line with the world interest rate. This will promote exchange rate stability and whenever there is an appreciation/depreciation the Central Banks must use interest rates to bring back the exchange rate to the desired rate. In emerging market economies, the reserve banks must employ what is referred to as the "sterilization" of capital flows to lessen the threat of currency appreciation. The local component of the monetary base (bank reserves plus currency) is decreased in a successful sterilization operation to counteract the reserve influx, at least temporarily. , Thesis (PhD) -- Faculty of Business and Economic Sciences, School of Economics, Development and Tourism, 2023
- Full Text:
- Date Issued: 2023-12
- Authors: Tenderere, Morris
- Date: 2023-12
- Subjects: Macroeconomics , Foreign exchange rates , International economic relations
- Language: English
- Type: Doctoral theses , text
- Identifier: http://hdl.handle.net/10948/66039 , vital:74319
- Description: The core objective of this study was to test the applicability of the Mundell-Fleming model in emerging market economies. Despite its importance, no study has examined the applicability of the Mundell-Fleming model in emerging market economies, as far as this study is aware. The Mundell-Fleming model predicts that in an environment with freely floating exchange rates, a drop in interest rates will lead to capital flight, which in turn will result in a fall in the exchange rate and a rise in net exports. The model takes into account both the international flow of capital and the flow of goods and services that might have a big impact on the country. The model's theoretical foundations offer practical instruments for assessing the impact of economic policy in light of the adopted exchange rate regimes of a nation. The model plays a key role in anticipating the link between output, interest rates, and exchange rates. A quantitative approach using panel monthly data over the period 2000 to 2017 for five emerging countries was carried out. Brazil, Malaysia, China, India, and South Africa were the considered countries due to availability of data. The Dynamic Ordinary Least Square (DOLS) and Fully Modified Ordinary Least Square (FMOLS) were used to analyse the data. The study confirmed the applicability of the Mundell-Fleming model in the studied countries given a positive relationship between interest rate and portfolio investment. This result means that when interest rates rise, capital flows also increase. In addition, the confirmation of Mundell-Fleming model is reflected in the negative relationship between portfolio investment and the rate of exchange. The Mundell-Fleming model describes how movement of capital and exchange rates behave. The study recommended that to ease the threat of currency appreciation, the Central Banks in merging market economies must ensure that the domestic interest rate is always in line with the world interest rate. This will promote exchange rate stability and whenever there is an appreciation/depreciation the Central Banks must use interest rates to bring back the exchange rate to the desired rate. In emerging market economies, the reserve banks must employ what is referred to as the "sterilization" of capital flows to lessen the threat of currency appreciation. The local component of the monetary base (bank reserves plus currency) is decreased in a successful sterilization operation to counteract the reserve influx, at least temporarily. , Thesis (PhD) -- Faculty of Business and Economic Sciences, School of Economics, Development and Tourism, 2023
- Full Text:
- Date Issued: 2023-12
Capital flows and real exchange rate movement in South Africa
- Authors: Lindani, Sandiswa
- Date: 2021-09
- Subjects: Foreign exchange rates , Exchange rate pass-through , Capital movements
- Language: English
- Type: Master's/ theses , text
- Identifier: http://hdl.handle.net/10353/20417 , vital:45664
- Description: The neoclassical theory suggests that free flow of external capital should be equilibrating and thereby facilitating smoothening of an economy's consumption or production patterns. Based on this background, this study empirically examines the extent to which the different forms of capital flows amongst other variables influence the real exchange rate in South Africa for the period 1980 to 2019, using annual data. Estimation techniques employed include the Johansen Co-integration Approach and the Vector error correction model (VECM). The variables were found to be co-integrated, with six co-integrating vectors existing. The long-run results revealed that FPI has an appreciating effect on the exchange rate in South Africa. Based on the results, policy recommendations are suggested. , Thesis (MCom) (Economics) -- University of Fort Hare, 2021.
- Full Text:
- Date Issued: 2021-09
- Authors: Lindani, Sandiswa
- Date: 2021-09
- Subjects: Foreign exchange rates , Exchange rate pass-through , Capital movements
- Language: English
- Type: Master's/ theses , text
- Identifier: http://hdl.handle.net/10353/20417 , vital:45664
- Description: The neoclassical theory suggests that free flow of external capital should be equilibrating and thereby facilitating smoothening of an economy's consumption or production patterns. Based on this background, this study empirically examines the extent to which the different forms of capital flows amongst other variables influence the real exchange rate in South Africa for the period 1980 to 2019, using annual data. Estimation techniques employed include the Johansen Co-integration Approach and the Vector error correction model (VECM). The variables were found to be co-integrated, with six co-integrating vectors existing. The long-run results revealed that FPI has an appreciating effect on the exchange rate in South Africa. Based on the results, policy recommendations are suggested. , Thesis (MCom) (Economics) -- University of Fort Hare, 2021.
- Full Text:
- Date Issued: 2021-09
The effects of exchange rate volatility on manufacturing exports in South Africa
- Authors: Munyu, Yibanati
- Date: 2020-01
- Subjects: Foreign exchange rates
- Language: English
- Type: Master's theses , text
- Identifier: http://hdl.handle.net/10353/20208 , vital:45411
- Description: The study examined the effect of exchange rate volatility on manufacturing exports in South Africa utilizing quarterly time series data from 1990 to 2018. Manufacturing exports (MX), foreign income (GDPf), input costs (C01), the real effective exchange rate (REER) and exchange rate volatility (V) were the key parameters. The study employed two alternative measures of exchange rate volatility. The first measure is the moving average standard deviation of the logarithm of the real effective exchange rate (MASDlnREER) based on the raw monthly data of the real effective exchange rate. The second measure is a dummy variable intended to capture the unexpected variation of the exchange rate. The study utilized the Autoregressive Distributed Lag (ARDL) and the Error Correction Method (ECM) to examine the both the long run and short-run relationships. The empirical results revealed that in the long run, the real effective exchange rate volatility measure (MASDlnREER) has a negative and significant effect on manufacturing exports in South Africa. This result suggests that policy makers need to make an effort to moderate, the volatility of the Rand in an attempt to contain the adverse effects on manufacturing exports. , Thesis (MCom) -- Faculty of Management and Commerce, 2020
- Full Text:
- Date Issued: 2020-01
- Authors: Munyu, Yibanati
- Date: 2020-01
- Subjects: Foreign exchange rates
- Language: English
- Type: Master's theses , text
- Identifier: http://hdl.handle.net/10353/20208 , vital:45411
- Description: The study examined the effect of exchange rate volatility on manufacturing exports in South Africa utilizing quarterly time series data from 1990 to 2018. Manufacturing exports (MX), foreign income (GDPf), input costs (C01), the real effective exchange rate (REER) and exchange rate volatility (V) were the key parameters. The study employed two alternative measures of exchange rate volatility. The first measure is the moving average standard deviation of the logarithm of the real effective exchange rate (MASDlnREER) based on the raw monthly data of the real effective exchange rate. The second measure is a dummy variable intended to capture the unexpected variation of the exchange rate. The study utilized the Autoregressive Distributed Lag (ARDL) and the Error Correction Method (ECM) to examine the both the long run and short-run relationships. The empirical results revealed that in the long run, the real effective exchange rate volatility measure (MASDlnREER) has a negative and significant effect on manufacturing exports in South Africa. This result suggests that policy makers need to make an effort to moderate, the volatility of the Rand in an attempt to contain the adverse effects on manufacturing exports. , Thesis (MCom) -- Faculty of Management and Commerce, 2020
- Full Text:
- Date Issued: 2020-01
The impact of the exchange rate on the manufacturing sector in South Africa (1983-2012)
- Authors: Ogunjobi, Olamide Doris
- Date: 2015-07
- Subjects: Foreign exchange rates , Manufacturing industries
- Language: English
- Type: text
- Identifier: http://hdl.handle.net/10353/25666 , vital:64355
- Description: The study, in its quest to explore the impact of Real Exchange Rate on the manufacturing sector in South Africa over the quarterly period 1983-2012 (30years), a VAR technique and VECM by Johansen (1991, 1995) estimation techniques were used. The study adopted Hodge (2012) model using five variables with GDP manufacturing as the dependent variable and the independent variables include; real exchange rate, gross fixed capital formation, interest rate and trade openness. The empirical analysis shows that real exchange rate has a significant impact on the South Africa manufacturing Sector. The impulse response and variance decomposition analysis in this study also revealed that interest rate has a significant impact on the South African manufacturing Sector. Furthermore gross fixed capital formation has a positive impact on the manufacturing sector. The same cannot be said about the trade openness in the short run. , Thesis (MCom) -- Faculty of Management and Commerce, 2015
- Full Text:
- Date Issued: 2015-07
- Authors: Ogunjobi, Olamide Doris
- Date: 2015-07
- Subjects: Foreign exchange rates , Manufacturing industries
- Language: English
- Type: text
- Identifier: http://hdl.handle.net/10353/25666 , vital:64355
- Description: The study, in its quest to explore the impact of Real Exchange Rate on the manufacturing sector in South Africa over the quarterly period 1983-2012 (30years), a VAR technique and VECM by Johansen (1991, 1995) estimation techniques were used. The study adopted Hodge (2012) model using five variables with GDP manufacturing as the dependent variable and the independent variables include; real exchange rate, gross fixed capital formation, interest rate and trade openness. The empirical analysis shows that real exchange rate has a significant impact on the South Africa manufacturing Sector. The impulse response and variance decomposition analysis in this study also revealed that interest rate has a significant impact on the South African manufacturing Sector. Furthermore gross fixed capital formation has a positive impact on the manufacturing sector. The same cannot be said about the trade openness in the short run. , Thesis (MCom) -- Faculty of Management and Commerce, 2015
- Full Text:
- Date Issued: 2015-07
Modelling daily return variations in developing market currencies
- Authors: Howarth, Grant
- Date: 2013-07-12
- Subjects: Dollar, American , Currency questions , Foreign exchange market , Foreign exchange rates , Rate of return -- Developing countries , Money market , Prices
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1076 , http://hdl.handle.net/10962/d1008365 , Dollar, American , Currency questions , Foreign exchange market , Foreign exchange rates , Rate of return -- Developing countries , Money market , Prices
- Description: This study examines the American Dollar (USD) denominated currency returns of five developing market currencies for the presence of the day-of-the-week effect. Daily data from January 1995 to February 2008 is examined, and is split into two subperiods, SP1 (1995 - 2002) and SP2 (2003 - February 2008). Currency returns are non-normally distributed across the full data set and SP1 , but tend towards normality in SP2. As such non-parametric tests are used to test the equality of the first four moments across days of the week. Tests on the first moment show that two of the currencies do not show any evidence of the day-of-the-week effect. However, evidence of the day-of-the-week effect is found in the other three currencies in SP1, although the effect disappears or weakens significantly in SP2. Little evidence of the day-of-the-week effect is found in tests on the second moment. The hypothesis of equal higher moments across currency returns is rejected for almost all of the weekday pairs for all five currencies in SP1 , but in SP2 the hypothesis of equal higher moments can only be rejected for a single pair of weekdays for one currency. This indicates the disappearance of the day-of-the-week effect across higher moments in SP2. Thus, the study finds that the day-of-the-week effect is present across the first moment and higher moments in the returns to most currencies in SP1 , but has disappeared for all five currencies in SP2. , KMBT_363 , Adobe Acrobat 9.54 Paper Capture Plug-in
- Full Text:
- Authors: Howarth, Grant
- Date: 2013-07-12
- Subjects: Dollar, American , Currency questions , Foreign exchange market , Foreign exchange rates , Rate of return -- Developing countries , Money market , Prices
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1076 , http://hdl.handle.net/10962/d1008365 , Dollar, American , Currency questions , Foreign exchange market , Foreign exchange rates , Rate of return -- Developing countries , Money market , Prices
- Description: This study examines the American Dollar (USD) denominated currency returns of five developing market currencies for the presence of the day-of-the-week effect. Daily data from January 1995 to February 2008 is examined, and is split into two subperiods, SP1 (1995 - 2002) and SP2 (2003 - February 2008). Currency returns are non-normally distributed across the full data set and SP1 , but tend towards normality in SP2. As such non-parametric tests are used to test the equality of the first four moments across days of the week. Tests on the first moment show that two of the currencies do not show any evidence of the day-of-the-week effect. However, evidence of the day-of-the-week effect is found in the other three currencies in SP1, although the effect disappears or weakens significantly in SP2. Little evidence of the day-of-the-week effect is found in tests on the second moment. The hypothesis of equal higher moments across currency returns is rejected for almost all of the weekday pairs for all five currencies in SP1 , but in SP2 the hypothesis of equal higher moments can only be rejected for a single pair of weekdays for one currency. This indicates the disappearance of the day-of-the-week effect across higher moments in SP2. Thus, the study finds that the day-of-the-week effect is present across the first moment and higher moments in the returns to most currencies in SP1 , but has disappeared for all five currencies in SP2. , KMBT_363 , Adobe Acrobat 9.54 Paper Capture Plug-in
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An analysis of the long run comovements between financial system development and mining production in South Africa
- Authors: Ajagbe, Stephen Mayowa
- Date: 2011
- Subjects: Economic development -- South Africa , Econometric models , Mineral industries -- Economic aspects -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Principal components analysis , Cointegration , Stock exchanges -- South Africa , Banks and banking -- South Africa , Foreign exchange rates
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:955 , http://hdl.handle.net/10962/d1002689 , Economic development -- South Africa , Econometric models , Mineral industries -- Economic aspects -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Principal components analysis , Cointegration , Stock exchanges -- South Africa , Banks and banking -- South Africa , Foreign exchange rates
- Description: This study examines the nature of the relationship which exists between mining sector production and development of the financial systems in South Africa. This is particularly important in that the mining sector is considered to be one of the major contributors to the country’s overall economic growth. South Africa is also considered to have a very well developed financial system, to the point where the dominance of one over the other is difficult to identify. Therefore offering insight into the nature of this relationship will assist policy makers in identifying the most effective policies in order to ensure that the developments within the financial systems impact appropriately on the mining sector, and ultimately on the economy. In addition to using the conventional proxies of financial system development, this study utilises the principal component analysis (PCA) to construct an index for the entire financial system. The multivariate cointegration approach as proposed by Johansen (1988) and Johansen and Juselius (1990) was then used to estimate the relationship between the development of the financial systems and the mining sector production for the period 1988-2008. The study reveals mixed results for different measures of financial system development. Those involving the banking system show that a negative relationship exists between total mining production and total credit extended to the private sector, while liquid liabilities has a positive relationship. Similarly, with the stock market system, mixed results are also obtained which reveal a negative relationship between total mining production and stock market capitalisation, while a positive relationship is found with secondary market turnover. Of all the financial system variables, only that of stock market capitalisation was found to be significant. The result with the financial development index reveals that a significant negative relationship exists between financial system development and total mining sector production. Results on the other variables controlled in the estimation show that positive and significant relationships exist between total mining production and both nominal exchange rate and political stability respectively. Increased mining production therefore takes place in periods of appreciating exchange rates, and similarly in the post-apartheid era. On the other hand, negative relationships were found for both trade openness and inflation control variables. The impulse response and variance decomposition analyses showed that total mining production explains the largest amount of shocks within itself. Overall, the study reveals that the mining sector might not have benefited much from the development in the South African financial system.
- Full Text:
- Date Issued: 2011
- Authors: Ajagbe, Stephen Mayowa
- Date: 2011
- Subjects: Economic development -- South Africa , Econometric models , Mineral industries -- Economic aspects -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Principal components analysis , Cointegration , Stock exchanges -- South Africa , Banks and banking -- South Africa , Foreign exchange rates
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:955 , http://hdl.handle.net/10962/d1002689 , Economic development -- South Africa , Econometric models , Mineral industries -- Economic aspects -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Principal components analysis , Cointegration , Stock exchanges -- South Africa , Banks and banking -- South Africa , Foreign exchange rates
- Description: This study examines the nature of the relationship which exists between mining sector production and development of the financial systems in South Africa. This is particularly important in that the mining sector is considered to be one of the major contributors to the country’s overall economic growth. South Africa is also considered to have a very well developed financial system, to the point where the dominance of one over the other is difficult to identify. Therefore offering insight into the nature of this relationship will assist policy makers in identifying the most effective policies in order to ensure that the developments within the financial systems impact appropriately on the mining sector, and ultimately on the economy. In addition to using the conventional proxies of financial system development, this study utilises the principal component analysis (PCA) to construct an index for the entire financial system. The multivariate cointegration approach as proposed by Johansen (1988) and Johansen and Juselius (1990) was then used to estimate the relationship between the development of the financial systems and the mining sector production for the period 1988-2008. The study reveals mixed results for different measures of financial system development. Those involving the banking system show that a negative relationship exists between total mining production and total credit extended to the private sector, while liquid liabilities has a positive relationship. Similarly, with the stock market system, mixed results are also obtained which reveal a negative relationship between total mining production and stock market capitalisation, while a positive relationship is found with secondary market turnover. Of all the financial system variables, only that of stock market capitalisation was found to be significant. The result with the financial development index reveals that a significant negative relationship exists between financial system development and total mining sector production. Results on the other variables controlled in the estimation show that positive and significant relationships exist between total mining production and both nominal exchange rate and political stability respectively. Increased mining production therefore takes place in periods of appreciating exchange rates, and similarly in the post-apartheid era. On the other hand, negative relationships were found for both trade openness and inflation control variables. The impulse response and variance decomposition analyses showed that total mining production explains the largest amount of shocks within itself. Overall, the study reveals that the mining sector might not have benefited much from the development in the South African financial system.
- Full Text:
- Date Issued: 2011
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