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Corresponding Author:
Goodness C. Aye, Department of Economics, University of Pretoria, Pretoria, South Africa

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

Volume 69 - Issue 3, August 2016
(pp. 193-212)
JEL classification: C32, Q11, Q40
Keywords: Oil Price, Food Price, Causality, Time Varying

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 show 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.

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Institute for International Economics of the Genoa Chamber of Commerce

Institute for International Economics
of the Genoa Chamber of Commerce