The Impact of Oil Shocks in a Small Open Economy New-Keynesian Dynamic Stochastic General Equilibrium Model for an Oil-Importing Country: The Case of South Africa

Hylton Hollander, Rangan Gupta and Mark Wohar

Emerging Markets Finance and Trade, 2019, vol. 55, issue 7, 1593-1618

Abstract: This article studies the effects of foreign (real) oil price shocks on key macroeconomic variables for South Africa: a net-importer of oil. We develop and estimate a small open economy New-Keynesian dynamic stochastic general equilibrium model with a role for oil in consumption and production. The substitutability of oil for capital and consumption goods is low, import price pass-through is incomplete, domestic and foreign prices and wages are sticky, and the uncovered interest rate parity condition holds imperfectly. Foreign real oil price shocks have a strong and persistent effect on domestic production and consumption activities and, hence, are a fundamental driver of output, inflation, and interest rates in both the short- and long-run. Oil price shocks also generate a trade-off between output and inflation stabilization. As a result, episodes of endogenous tightening of monetary policy slow the recovery of South Africa’s real economy. Our findings go further to suggest an important role for oil prices in predicting South African output during and after the recession that followed the 2008 global financial crisis.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://hdl.handle.net/10.1080/1540496X.2018.1474346 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:55:y:2019:i:7:p:1593-1618

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MREE20

DOI: 10.1080/1540496X.2018.1474346

Access Statistics for this article

More articles in Emerging Markets Finance and Trade from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().