The Movement of Exchange Rate and Expected Income: Case of South Africa

Abstract

Many studies have investigated the impact of expectations on the exchange rates. However, it remains a challenge linking the exchange rates to its fundamentals. This study seeks to determine the impact of expectations of future income on the exchange rates behaviour. In this study, we employ the Bayesian VAR method. The study finds that the expectations of income have effects on the exchange rate behaviour. Furthermore, the exchange rates behaviour is asymmetric.

Keywords

• expectations
• income
• output
• growth
• exchange rates
• fdi.