South African Journal of Economic and Management Sciences, Vol 10, No 1 (2007)

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Measuring exchange market pressure in South Africa: an application of the Girton-Roper monetary model

Emmanuel Ziramba

Abstract


The monetary approach to the balance of payments is based on the assumption of a fixed exchange rate, while its approach to exchange rate determination is based on perfectly flexible exchange rate. Another monetary model called the Exchange Market Pressure model (EMP) was designed to capture the properties of the managed float. This paper applies the monetary model of the EMP to the South African experience with floating exchange rate and managed float systems over the period 1970-1993. We show that the EMP model is superior to the traditional monetary approach. We do not find evidence of the impact of domestic real income on EMP. Diagnostic tests suggest that the model is well specified and the residuals pass the typical checking.

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EISSN 2222-3436 (Online)