Estimating the relationship between commodity prices and the real exchange rate of the rand

The key objective of this paper is to construct a commodity export price series for South Africa (incorporating a wider range of commodities than those considered in the empirical literature on South Africa to date) and to determine its influence on real exchange rate movements in South Africa. Existing models of the determinants of the real exchange rate of the rand employed in the literature will facilitate the analysis. The paper will investigate the long-run relationship between the real exchange rate and commodity prices in South Africa. More specifically, the paper will attempt to determine whether commodity prices are an important source of persistent changes in the real exchange rate of South Africa.