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Oil Price Uncertainty and Manufacturing Production in South Africa

Author

Listed:
  • Goodness C. Aye

    (Department of Economics, University of Pretoria)

  • Vincent Dadam

    (Department of Economics, University of Pretoria)

  • Rangan Gupta

    (Department of Economics, University of Pretoria)

  • Bonginkosi Mamba

    (Department of Economics, University of Pretoria)

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.

Suggested Citation

  • Goodness C. Aye & Vincent Dadam & Rangan Gupta & Bonginkosi Mamba, 2013. "Oil Price Uncertainty and Manufacturing Production in South Africa," Working Papers 201368, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201368
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    More about this item

    Keywords

    Oil volatility; Vector autoregression; Bivariate GARCH-in-mean VAR; Manufacturing production;
    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
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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