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Issue Q4 2014  
Modelling the oil price –exchange rate nexus for South Africa  
Babajide Fowowe
This paper conducts an empirical analysis of the relationship between oil prices and exchange rates in South Africa. We model the volatility and jumps in exchange rate returns by using the GARCH autoregressive conditional jump intensity model of Chan and Maheu which models the effects of extreme news events (jumps) in returns. The empirical results show that oil price increases lead to a depreciation of the South African rand relative to the US dollar. This finding suggests that oil price increases have led to a transfer of wealth from South Africa to the OPEC countries. Abstract

Exchange rate ; Oil price ; Jumps ; GARCH ; South Africa ; Keywords
F31 ; C22 ; G15 ; JEL classification
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