Exchange Rate Volatility, t he Contagion and Spillover Effect from South African to Other SADC Currency Markets: 2007-2015

This paper investigates the transmission of the South African exchange rate volatility to other countries in the SADC region since most countries in the region have high intra-trade shares with South Africa. An analysis of the spillover effect, with a specific focus on the contagion of the financial crises, can assist in the development of a responsive policy. The study used the GARCH (p, q) model and the Exponential GARCH model to address the objective of the study. The key finding of the paper confirms the presence of the rand volatility-contagion effect during the crisis period and its spillover effect during tranquil periods to most currency markets in the region. These results show that the Central Banks of SADC countries should take policy action to cushion the effects following an exchange rate shock. Therefore, the results of this paper are useful for policymakers to formulate and implement appropriate policies in the event that an adverse shock is observed in SADC exchange markets where contagion/spillover effect is empirically manifested.