The effect of real exchange rate volatility on unemployment: a case study of South Africa
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Date
2025-06-08
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University of Fort Hare
Abstract
This research investigates the effect of the real exchange rate volatility on unemployment in South Africa over the period spanning from 1994 to 2022. South Africa has experienced serious economic challenges, including high unemployment rate. Real exchange rate volatility could exacerbate economic vulnerabilities, affecting various sectors and leading to job losses. This study examines the effect of real exchange rate volatility on unemployment using quarterly data from South Africa Reserve Bank (SARB) and Federal Reserve Economic Data (FRED). The study also implements Generalized Autoregressive Conditional Heteroscedasticity GARCH (1:1) model to analyse the time series data. The empirical results reveal that only Real effective exchange rate (REER) positively impacts unemployment in South Africa. Real exchange rate volatility (VOL) real interest rate (RIR) and exports (EXP01) are negatively correlated with unemployment in South Africa. The findings of the current research imply that VOL significantly affects South African unemployment. Policymakers can use the findings to develop policies which stabilize real exchange rate volatility and unemployment.
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Keywords
Foreign exchange rates, Foreign exchange market, Unemployment