ANALYSING THE EXCHANGE RATE VOLATILITY RELATIVE TO TRADE BALANCE: THE CASE OF SACU COUNTRIES
Date
2020-09-23
Authors
HAANSENDE, CHRISTINE MAZUBA
Journal Title
Journal ISSN
Volume Title
Publisher
UNVERSITY OF NAMIBIA
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
Description
Macroeconomics