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A Reinvestigation of the Oil Price and Consumer Price Nexus in South Africa: An Asymmetric Causality Approach

Author

Listed:
  • Ahdi N. Ajmi

    (College of Science and Humanities in Slayel, Salman bin Abdulaziz University, Kingdom of Saudi Arabia)

  • Vassilios Babalos

    (Technological Educational Institute of Kalamata,Department of Finance and Auditing, Kalamata, Greece)

  • Rangan Gupta

    (Department of Economics, University of Pretoria)

  • Roulof Hefer

    (Department of Economics, University of Pretoria)

Abstract

The relationship between oil and the price level has always garnered attention from policy makers and role players in the market. Periods of high oil price volatility is thought to have negative repercussions for domestic price levels in an oil importing country. Research in the past has shown that the relationship between oil prices and consumer prices requires a non-linear form to correctly capture causal effects. Thus we use a new asymmetric causality test developed by Hatemi-J (2012) to determine the relationship between oil prices and the price level in South Africa over the monthly period of 1921:M02 to 2013:M10. This method separates the effects of positive shocks from negatives ones and affords one the ability to test for an asymmetric relationship. We find evidence in favour of a causal relationship from oil prices to the price level, but this relationship is confined to the short run as there is no cointegrating relationship. The asymmetric tests show that both a positive and negative oil price shock leads to a positive price level shock, however the evidence in favour of a negative oil price shock is stronger.

Suggested Citation

  • Ahdi N. Ajmi & Vassilios Babalos & Rangan Gupta & Roulof Hefer, 2014. "A Reinvestigation of the Oil Price and Consumer Price Nexus in South Africa: An Asymmetric Causality Approach," Working Papers 201423, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201423
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    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.

    More about this item

    Keywords

    Oil prices; Consumer prices; asymmetric causality;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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