Record Details

Modelling the rand and commodity prices: A Granger causality and cointegration analysis

South African Journal of Economic and Management Sciences


 
 
Field Value
 
Title Modelling the rand and commodity prices: A Granger causality and cointegration analysis
 
Creator Ndlovu, Xolani Schaling, Eric Alagidede, Paul
 
Description This paper examines the ‘commodity currency’ hypothesis of the Rand, that is, the postulate that the currency moves in line with commodity prices, and analyses the associated causality using nominal data between 1996 and 2010. We address both the short run and long run relationship between commodity prices and exchange rates. We find that while the levels of the series of both assets are difference stationary, they are not cointegrated. Further, we find the two variables are negatively related, with strong and significant causality running from commodity prices to the exchange rate and not vice versa, implying exogeneity in the determination of commodity prices with respect to the nominal exchange rate. The strength of the relationship is significantly weaker than other OECD commodity currencies. We surmise that the relationship is dynamic over time owing to the portfolio-rebalance argument and the Commodity Terms of Trade (CTT) effect and, in the absence of an error correction mechanism, this disconnect may be prolonged. For commodity and currency market participants, this implies that while futures and forward commodity prices may be useful leading indicators of future currency movements, the price risk management strategies may need to be recalibrated over time.
 
Publisher AOSIS Publishing
 
Contributor
Date 2014-11-28
 
Type info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion Peer-reviewed Article
Format application/pdf
Identifier 10.4102/sajems.v17i5.334
 
Source South African Journal of Economic and Management Sciences; Vol 17, No 5 (2014); 673-690 2222-3436 1015-8812
 
Language eng
 
Relation http://sajems.org/index.php/sajems/article/view/334/472 http://sajems.org/index.php/sajems/article/downloadSuppFile/334/217 http://sajems.org/index.php/sajems/article/downloadSuppFile/334/218