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Causality between Oil and South Africa’s Food Price: Time Varying Approach

Goodness Aye ()
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Goodness Aye: Department of Economics, University of Pretoria

No 201486, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper examines the dynamic causal relationship between global oil price and South Africa’s food price using both full sample and time varying Granger causality tests. Monthly data from 2000:1 to 2014:6 is used. Result from the linear full sample Granger causality result shows no evidence of significant causality between oil price and food price. However, various stability tests shows that the relevant VAR is unstable, thus invalidating conclusions from the full sample linear Granger causality tests. Based on this the causality analysis is performed using a time varying approach. Result from the latter shows that oil price Granger causes South Africa’s food price at different sub-periods: 2002-2003, 2006 and 2010. This challenges the assumption that the causal relationship between the two variables is constant over time. Therefore, these results highlight the importance of using methods that account for structural breaks and nonlinearities in the dynamic causal relationship between global oil price and South Africa’s food price.

Keywords: Oil price; food price; causality; time varying (search for similar items in EconPapers)
JEL-codes: C32 Q11 Q40 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2014-12
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