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The Impact of Oil Shocks on the South African Economy

Carolyn Chisadza, Janneke Dlamini (), Rangan Gupta () and Mampho Modise ()
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Janneke Dlamini: Department of Economics, University of Pretoria
Mampho Modise: Department of Economics, University of Pretoria

No 201311, Working Papers from University of Pretoria, Department of Economics

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.

Keywords: Oil price shocks; macroeconomic variables; vector autoregression; monetary policy (search for similar items in EconPapers)
JEL-codes: E13 E63 E66 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2013-02
New Economics Papers: this item is included in nep-afr, nep-ene and nep-mac
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