IDEAS home Printed from https://ideas.repec.org/p/pre/wpaper/201311.html
   My bibliography  Save this paper

The Impact of Oil Shocks on the South African Economy

Author

Listed:
  • Carolyn Chisadza

    (Department of Economics, University of Pretoria)

  • Janneke Dlamini

    (Department of Economics, University of Pretoria)

  • Rangan Gupta

    (Department of Economics, University of Pretoria)

  • Mampho P. Modise

    (Department of Economics, University of Pretoria)

Abstract

The recent increases in oil prices have raised the importance of studying the effects of oil supply and demand shocks on an economy. The purpose of this paper is to investigate the impact of the oil supply and demand shocks on the South African economy using a sign restriction-based structural Vector Aautoregressive (VAR) model. Our results show that an oil supply shock has a short-lived significant impact only on the inflation rate, while the impact on the other variables is statistically insignificant. Supply disruptions results in a short-term increase in the domestic inflation rate with no reaction from the monetary policy. An aggregate demand shock results in short- to medium-term improvements in domestic output and the real exchange rate. The effect is statistically insignificant for the inflation rate as well as the monetary policy instrument. The inflation rate and the real exchange rate react negatively to an oil-specific demand shock, while output is positively related to unanticipated changes in oil price due to speculations.

Suggested Citation

  • Carolyn Chisadza & Janneke Dlamini & Rangan Gupta & Mampho P. Modise, 2013. "The Impact of Oil Shocks on the South African Economy," Working Papers 201311, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201311
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    as
    1. Christiane Baumeister & Gert Peersman & Ine Van Robays, 2010. "The Economic Consequences of Oil Shocks: Differences across Countries and Time," RBA Annual Conference Volume (Discontinued), in: Renée Fry & Callum Jones & Christopher Kent (ed.),Inflation in an Era of Relative Price Shocks, Reserve Bank of Australia.
    2. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
    3. Robert B. Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 115-134, Fall.
    4. Lutz Kilian, 2008. "Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy?," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 216-240, May.
    5. Lutz Kilian, 2008. "The Economic Effects of Energy Price Shocks," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 871-909, December.
    6. Gert Peersman & Ine van Robays, 2009. "Oil and the Euro area economy [Labour market implications of EU product market integration]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 24(60), pages 603-651.
    7. Hooker, Mark A, 2002. "Are Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 540-561, May.
    8. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    9. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    10. Olivier J. Blanchard & Jordi Galí, 2007. "The Macroeconomic Effects of Oil Price Shocks: Why Are the 2000s so Different from the 1970s?," NBER Chapters, in: International Dimensions of Monetary Policy, pages 373-421, National Bureau of Economic Research, Inc.
    11. Lutz Kilian, 2008. "A Comparison of the Effects of Exogenous Oil Supply Shocks on Output and Inflation in the G7 Countries," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 78-121, March.
    12. Fofana, Ismaél & Chitiga, Margaret & Mabugu, Ramos, 2009. "Oil prices and the South African economy: A macro-meso-micro analysis," Energy Policy, Elsevier, vol. 37(12), pages 5509-5518, December.
    13. Christiane Baumeister & Gert Peersman, 2013. "Time-Varying Effects of Oil Supply Shocks on the US Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 1-28, October.
    14. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 195-213, October.
    15. McDonald, Scott & van Schoor, Melt, 2005. "A Computable General Equilibrium (CGE) Analysis of the Impact of an Oil Price Increase in South Africa," Working Paper Series 15633, PROVIDE Project.
    16. Robert B. Barsky & Lutz Kilian, 2002. "Do We Really Know That Oil Caused the Great Stagflation? A Monetary Alternative," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 137-198, National Bureau of Economic Research, Inc.
    17. Hooker, Mark A., 1996. "This is what happened to the oil price-macroeconomy relationship: Reply," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 221-222, October.
    18. Edelstein, Paul & Kilian, Lutz, 2009. "How sensitive are consumer expenditures to retail energy prices?," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 766-779, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mehmet Balcilar & Reneé van Eyden & Josine Uwilingiye & Rangan Gupta, 2017. "The Impact of Oil Price on South African GDP Growth: A Bayesian Markov Switching-VAR Analysis," African Development Review, African Development Bank, vol. 29(2), pages 319-336, June.
    2. Sheng, Xin & Gupta, Rangan & Ji, Qiang, 2020. "The impacts of structural oil shocks on macroeconomic uncertainty: Evidence from a large panel of 45 countries," Energy Economics, Elsevier, vol. 91(C).
    3. Gupta, Rangan & Kotzé, Kevin, 2017. "The role of oil prices in the forecasts of South African interest rates: A Bayesian approach," Energy Economics, Elsevier, vol. 61(C), pages 270-278.
    4. Gourène, Grakolet Arnold Zamereith & Mendy, Pierre, 2015. "Oil Prices and African Stock Markets Co-movement: A Time and Frequency Analysis," MPRA Paper 75852, University Library of Munich, Germany.
    5. Afees A. Salisu & Rangan Gupta, 2021. "Commodity Prices and Forecastability of South African Stock Returns Over a Century: Sentiments versus Fundamentals," Working Papers 202144, University of Pretoria, Department of Economics.
    6. Gupta, Rangan & Kanda, Patrick T., 2015. "Does the Price of Oil Help Predict Inflation in South Africa? Historical Evidence Using a Frequency Domain Approach. - Il prezzo del petrolio predice l’inflazione in Sud Africa? Evidenza storica attra," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 68(4), pages 451-467.
    7. Gupta, Rangan & Modise, Mampho P., 2013. "Does the source of oil price shocks matter for South African stock returns? A structural VAR approach," Energy Economics, Elsevier, vol. 40(C), pages 825-831.
    8. Franz Ruch & Stan du Plessis, 2015. "SecondRound Effects from Food and Energy Prices an SBVAR approach," Working Papers 7008, South African Reserve Bank.
    9. Rangan Gupta & Hylton Hollander & Mark E. Wohar, 2016. "The Impact of Oil Shocks in a Small Open Economy New-Keynesian Dynamic Stochastic General Equilibrium Model for South Africa," Working Papers 201652, University of Pretoria, Department of Economics.
    10. Adekoya, Oluwasegun B. & Ogunbowale, Gideon O. & Akinseye, Ademola B. & Oduyemi, Gabriel O., 2021. "Improving the predictability of stock returns with global financial cycle and oil price in oil-exporting African countries," International Economics, Elsevier, vol. 168(C), pages 166-181.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christiane Baumeister & Gert Peersman, 2013. "Time-Varying Effects of Oil Supply Shocks on the US Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 1-28, October.
    2. Ana Gómez-Loscos & Mar𨀠 Dolores Gadea & Antonio Montañ鳠, 2012. "Economic growth, inflation and oil shocks: are the 1970s coming back?," Applied Economics, Taylor & Francis Journals, vol. 44(35), pages 4575-4589, December.
    3. Gnimassoun, Blaise & Joëts, Marc & Razafindrabe, Tovonony, 2017. "On the link between current account and oil price fluctuations in diversified economies: The case of Canada," International Economics, Elsevier, vol. 152(C), pages 63-78.
    4. Archanskaïa, Elizaveta & Creel, Jérôme & Hubert, Paul, 2012. "The nature of oil shocks and the global economy," Energy Policy, Elsevier, vol. 42(C), pages 509-520.
    5. Jihoon Lee & Hong Chong Cho, 2021. "Impact of Structural Oil Price Shock Factors on the Gasoline Market and Macroeconomy in South Korea," Sustainability, MDPI, vol. 13(4), pages 1-23, February.
    6. Cristina Conflitti and Matteo Luciani, 2019. "Oil Price Pass-through into Core Inflation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    7. Blaise Gnimassoun & Marc Joëts & Tovonony Razafindrabe, 2016. "On the link between current account and oil price fluctuations in diversified economies: The case of Canada," Working Papers hal-04141574, HAL.
    8. Todd E. Clark & Stephen J. Terry, 2010. "Time Variation in the Inflation Passthrough of Energy Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1419-1433, October.
    9. Christiane Baumeister & Gert Peersman & Ine Van Robays, 2010. "The Economic Consequences of Oil Shocks: Differences across Countries and Time," RBA Annual Conference Volume (Discontinued), in: Renée Fry & Callum Jones & Christopher Kent (ed.),Inflation in an Era of Relative Price Shocks, Reserve Bank of Australia.
    10. Claudio Morana, 2013. "The Oil Price-Macroeconomy Relationship Since the Mid-1980s: A Global Perspective," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    11. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    12. Rajesh H. Acharya & Anver C. Sadath, 2018. "Revisiting the relationship between oil price and macro economy: Evidence from India," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2018(1), pages 173-190.
    13. Engemann, Kristie M. & Kliesen, Kevin L. & Owyang, Michael T., 2011. "Do Oil Shocks Drive Business Cycles? Some U.S. And International Evidence," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 498-517, November.
    14. Broadstock, David C. & Filis, George, 2014. "Oil price shocks and stock market returns: New evidence from the United States and China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 417-433.
    15. Stock, J.H. & Watson, M.W., 2016. "Dynamic Factor Models, Factor-Augmented Vector Autoregressions, and Structural Vector Autoregressions in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 415-525, Elsevier.
    16. Ravazzolo Francesco & Rothman Philip, 2016. "Oil-price density forecasts of US GDP," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 20(4), pages 441-453, September.
    17. Munechika Katayama, 2013. "Declining Effects of Oil Price Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 977-1016, September.
    18. Francesco Lippi & Andrea Nobili, 2012. "Oil And The Macroeconomy: A Quantitative Structural Analysis," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1059-1083, October.
    19. Francesco Ravazzolo & Philip Rothman, 2013. "Oil and U.S. GDP: A Real-Time Out-of-Sample Examination," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 449-463, March.
    20. Angelidis, Timotheos & Degiannakis, Stavros & Filis, George, 2015. "US stock market regimes and oil price shocks," Global Finance Journal, Elsevier, vol. 28(C), pages 132-146.

    More about this item

    Keywords

    Oil price shocks; macroeconomic variables; vector autoregression; monetary policy;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pre:wpaper:201311. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rangan Gupta (email available below). General contact details of provider: https://edirc.repec.org/data/decupza.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.