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Analysing The Exchange Rate Volatility Relative To Trade Balance: The Case Of Sacu Countries

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  • HAANSENDE, CHRISTINE MAZUBA

Abstract

The term exchange rate volatility is widely used in the financial market. The exchange rate is determined in the foreign exchange market, which is said to be the largest market in the world and it trades financial assets. Many studies have shown that researchers, relevant practitioners and policy makers pay lots of attention to the issue of exchange rate and volatility. Volatility is known to be very important when it comes to making decisions in financial trading activities that are based on fluctuations on return. This study has two main objectives, namely to analyse the kind of relationship between exchange rate volatility and trade balance in the selected member states of the SACU region in which the selected countries are Botswana, Namibia, Swaziland and South Africa. The second objective of this study was to determine the impact between exchange rate volatility and trade balance in the selected member states of the SACU region. The time series data which was used in this study was from the period 1986 to 2016. The Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model, the impulse response functions and variance decompositions are used in the analysis. Results show that there is a short-run relationship between exchange rate volatility and trade balance. It was found that there is a positive and negative impact between these two variables, with high volatility. Furthermore, this study recommends all Central Banks in the SACU region to intervene in order to mitigate exchange rate volatili

Suggested Citation

  • Haansende, Christine Mazuba, 2020. "Analysing The Exchange Rate Volatility Relative To Trade Balance: The Case Of Sacu Countries," Working Papers 070180ab-914f-4cdd-89e4-e, African Economic Research Consortium.
    • Handle: RePEc:aer:wpaper:070180ab-914f-4cdd-89e4-eac1f4fe7cea
    Note: African Economic Research Consortium
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