The Consequences of Policy Uncertainty: Disconnects and Dilutions in the South African Real Effective Exchange Rate-Export Relationship

June 9, 2016

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Format: Chicago

Sandile Hlatshwayo, and Magnus Saxegaard. The Consequences of Policy Uncertainty: Disconnects and Dilutions in the South African Real Effective Exchange Rate-Export Relationship, (USA: International Monetary Fund, 2016) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In recent years, the link between the real effective exchange rate (REER) and exports in South Africa has weakened. While exports still rise in response to REER depreciations, the REER-export elasticity is below historical estimates. The literature has put forward a number of possible explanations, from multi-national supply-chains to muted exchange rate pass-through. This research explores the role of policy uncertainty in reducing the responsiveness of exports to relative price changes. We construct a novel “news chatter” measure of policy uncertainty and examine how it, paired with other supply-side constraints, can improve our understanding of export performance. We find that increased policy uncertainty diminishes the responsiveness of exports to the REER and has short and long-run level effects on export performance. Finally, we show that a measure of competitiveness that adjusts for uncertainty and supply-side constraints greatly outperforms the REER in tracking exports performance.

Subject: Commodities, Electricity, Export performance, Export prices, Exports, Foreign exchange, International trade, Prices, Real effective exchange rates

Keywords: Africa, Competitiveness, Demand function, Economic policy, Electricity, Export market entry cost, Export performance, Export price elasticity, Export prices, Export responsiveness, Export volume, Exports, Policy uncertainty, Price elasticity, Price responsiveness, Real Effective Exchange Rate, Real effective exchange rates, REER-export relationship, Responsiveness of export, Uncertainty search algorithm, Uncertainty-a direct effect, Weighted index, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/113
Stock No:

WPIEA2016113
ISBN:

9781484383490
ISSN:

1018-5941

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