Oil Price Uncertainty and Manufacturing Production in South Africa

Goodness Aye (goodness.aye@gmail.com), Vincent Dadam (dadamvince@yahoo.fr), Rangan Gupta and Bonginkosi Mamba (bonginkosi.mamba@gmail.com)
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Goodness Aye: Department of Economics, University of Pretoria
Vincent Dadam: Department of Economics, University of Pretoria
Bonginkosi Mamba: Department of Economics, University of Pretoria

No 201368, Working Papers from University of Pretoria, Department of Economics

Abstract: Given the rapid rise and volatility of oil prices, the paper investigates the effect of oil price uncertainty on the South African manufacturing production using monthly observations covering the period 1974:02 to 2012:12. In addition, we quantify the responses of manufacturing production to positive and negative oil price shocks. We examine the dynamic relationship using a bivariate GARCH-in-mean VAR simultaneously estimated with a full information maximum likelihood technique. The conditional standard deviation of the forecast of the growth of US crude oil imported acquisition cost by refiners is used as a measure of oil price uncertainty. Our results show that oil price uncertainty negatively and significantly impacts on South Africa’s manufacturing production. We also find that the responses of manufacturing production to positive and negative shocks are asymmetric.

Keywords: Oil volatility; Vector autoregression; Bivariate GARCH-in-mean VAR; Manufacturing production (search for similar items in EconPapers)
JEL-codes: C32 D24 E23 E32 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2013-11
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201368

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