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Does the Price of Oil Help Predict Inflation in South Africa? Historical Evidence Using a Frequency Domain Approach. - Il prezzo del petrolio predice l’inflazione in Sud Africa? Evidenza storica attraverso l’utilizzo di un approccio basato sulla frequenza

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Abstract

The association between oil prices and inflation has remained an intriguing issue for media, academic as well as policy enquiry. Against this backdrop, we perform the frequency-domain causality test to investigate whether the growth rate of oil prices has predictive content for inflation in South Africa. As a preliminary step in our analysis, given that we use a long historical data set spanning from 1922:M01 to 2013:M07, we investigate the possibility of structural breaks in the inflation equation. We detect three breaks which define four regimes. We then perform the frequency-domain test on the full-sample, as well as, the four identified regime-specific subsamples. We find evidence of the growth rate of oil prices to have predictive content for South African inflation based on the full-sample, as well as, two of the four regime-specific sub-samples. Given that the frequency-domain test allows us to decompose the causality across different time horizons, results also suggest that cycles of predictability of South African inflation emanating from the the growth in international oil prices could last for much longer durations for periods preceding the adoption of an inflation-targeting framework for monetary policy in South Africa. - La relazione tra prezzo del petrolio e inflazione è un problema di grande interesse sia per i media sia per la ricerca accademica e politica. Sulla base di questa considerazione abbiamo eseguito il test di causalità basato sulla frequenza per esaminare se l’aumento del prezzo del petrolio è predittivo dell’inflazione in Sud Africa. Come primo passo nell’analisi, premesso che utilizziamo un data set storico ampio – gennaio 1922-luglio 2013 – esaminiamo la possibilità di break strutturali nell’equazione di inflazione. Rileviamo tre break che definiscono quattro regimi. In seguito eseguiamo il test basato sulla frequenza sia sul campione completo che sui quattro sotto-campioni di specifici regimi. I risultati evidenziano che il tasso di aumento dei prezzi del petrolio è predittivo dell’inflazione in Sud Africa sulla base sia del campione completo che di due dei quattro sotto-campioni di specifici regimi. Considerato che il test basato sulla frequenza ci consente di scomporre la causalità per orizzonti temporali differenti, i risultati suggeriscono anche che i cicli di prevedibilità dell’inflazione in Sud Africa derivanti dalle variazioni dei prezzi internazionali del petrolio potrebbero essere molto più duraturi in periodi che precedono l’adozione di un obiettivo di politica monetaria inflation-targeting.

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  • Gupta, Rangan & Kanda, Patrick T., 2015. "Does the Price of Oil Help Predict Inflation in South Africa? Historical Evidence Using a Frequency Domain Approach. - Il prezzo del petrolio predice l’inflazione in Sud Africa? Evidenza storica attra," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 68(4), pages 451-467.
    • Handle: RePEc:ris:ecoint:0763
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    More about this item

    Keywords

    Oil Prices; Inflation; Causality; Frequency-Domain;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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