Exchange rate changes on export volumes in South Africa under the inflation targeting period

This paper examines the long run effects of the exchange rate changes on export volumes in South Africa under the inflation targeting period using the Johansen cointegration and the Engle–Granger approaches. This paper further examines whether the 2007 global financial crisis, rising government debt, and cost of credit post 2008Q4 impacted the magnitudes of determinants of export volumes. Both tests confirm a long run relationship amongst export volumes, exchange rate, and foreign income. The long run exchange rate impacts are bigger than the short run effects. Foreign income demand has bigger impact on export volumes than the exchange rate. Evidence shows that 2007 global financial crisis reduced the impact of the exchange rate depreciation on export volumes but increased the impact of the foreign income demand. This suggests relying on the exchange rate as a policy tool alone to achieve the external adjustment may not raise export volumes. The global financial crisis exacerbated the adverse effects of the exchange rate volatility on the export volumes, indicating that policymakers should implement policies that limit the exchange rate volatility. The adverse effects of the global financial crisis on export volumes were transmitted more via the consumer prices rather than the exchange rate, suggesting that South Africa lost its price competitiveness during the crisis period. Rising government debt and the cost of credit post 2008Q4 are transmitted more via the exchange rate than relative price ratios to reduce export volumes. The exchange rate volatility channel does not transmit the rising government debt shocks to export volumes. SUPPLEMENTARY INFORMATION: The online version contains supplementary material available at 10.1007/s43546-022-00217-2.