The Impact of International Spillovers on the South African Economy

Franz Ruch

No 5705, Working Papers from South African Reserve Bank

Abstract: This paper estimates a multi-country vector autoregressive model (VAR) using South African, the euro area, the United States, Japan and China industrial production in order to determine the impact of business cycle spillovers on South Africa and the synchronisation of business cycles. The spillover index methodology of Diebold and Yilmaz is applied, using forecast error variance decompositions implemented over seven-year rolling windows in order to get a time evolution of the variables of interest. The results show that the South African economy has been significantly affected by international spillovers over the sample period, with the variation in South African industrial production due to spillovers from other countries or common shocks averaging 37,6 per cent. This variation peaked to an average of 62,2 per cent over the financial crisis period and remains significantly high.

Date: 2013-05-09
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