Acta Universitatis Danubius. Œconomica, Vol 13, No 3 (2017)

Abstract

The paper sets out to model the volatility of South African exchange rates amidst global shocks. Using innovation accounting in a symmetric GARCH (1,1) and asymmetric EGARCH (1,1) and a theoretical model built by Kamal et al. (2012), Omolo (2014) and AL-Najjar (2016), it is established that the EGARCH (1,1) model outperformed the GARCH (1,1) model and can be recommended to policymakers in South Africa. The results of the diagnostic test show no evidence of serial correlation and ARCH effects in the model while the Student’s t distribution shows the best fits among the alternatives. The study recommends that the South Africa government should consider the impacts of the global shocks when formulating and implementing economic policies especially the exchange rates policies.