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All Journal Indonesian Journal of Islamic Economics and Finance
Jeke L
Nelson Mandela University
Economics, Econometrics & Finance Social Sciences

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The Impact of Political Instability on the Exchange Rate in South Africa: An Econometric Model Munzhelele Tshilidzi; Jeke L
Indonesian Journal of Islamic Economics and Finance Vol. 5 No. 1 (2025)
Publisher : Institut Agama Islam Sunan Giri Ponorogo

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.37680/ijief.v5i1.7063

Abstract

This study analyzes the impact of political instability on currency exchange rates in South Africa by considering economic growth, real interest rates, inflation, law enforcement, and corruption control. Using secondary data from 1980 to 2020, this study applies the Granger causality test, the Vector Error Correction Model (VECM), and ARIMA forecasting (3.1.2) to project trends for the period 2021–2040. The results of the Granger causality test show that political instability does not directly cause exchange rate fluctuations or inflation. However, the VECM estimate confirms the presence of short-term correlations and long-term relationships, in which political instability exerts negative pressure on exchange rates. In contrast, the variables of corruption control and real interest rates have been shown to have a statistically significant positive impact on exchange rates in the long run. Furthermore, ARIMA's forecast indicates that political turmoil is expected to ease and stabilize from 2021 to 2040, accompanied by a gradual increase in exchange rates. Based on these findings, policymakers are advised to optimize the use of macroeconomic instruments, particularly real interest rates and institutional stability, to stabilize the economy and prevent excessive currency volatility.
Co-Authors Munzhelele Tshilidzi