Comparative Analysis of VAR and SVAR Models in Assessing Oil Price Shocks and Exchange Rate Transmission to Consumer Prices in South Africa
This study compared standard VAR, SVAR with short-run restrictions, and SVAR with long-run restrictions to investigate the effects of oil price shocks and the foreign exchange rate (ZAR/USD) on consumer prices in South Africa after the 2008 financial crisis. The standard VAR model revealed that cons...
Saved in:
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
MDPI AG
2025-02-01
|
| Series: | Econometrics |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2225-1146/13/1/8 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1849341855284592640 |
|---|---|
| author | Luyanda Majenge Sakhile Mpungose Simiso Msomi |
| author_facet | Luyanda Majenge Sakhile Mpungose Simiso Msomi |
| author_sort | Luyanda Majenge |
| collection | DOAJ |
| description | This study compared standard VAR, SVAR with short-run restrictions, and SVAR with long-run restrictions to investigate the effects of oil price shocks and the foreign exchange rate (ZAR/USD) on consumer prices in South Africa after the 2008 financial crisis. The standard VAR model revealed that consumer prices responded positively to oil price shocks in the short term, whereas the foreign exchange rate (ZAR/USD) revealed a fluctuating currency over time. That is, the South African rand (ZAR) initially appreciated against the US dollar (USD) in response to oil price shocks (periods 1:7), followed by a depreciation in periods 8:12. Imposing short-run restrictions on the SVAR model revealed that the foreign exchange rate (ZAR/USD) reacted to oil price shocks in a manner similar to the VAR model, with ZAR appreciating during the initial periods (1:7) and subsequently depreciating in the later periods (8:12). Consumer prices responded positively to oil price shocks, causing consumer prices to increase in the short run, which is consistent with the VAR findings. However, imposing long-run restrictions on our SVAR model yielded results that contrasted with those obtained under short-run restrictions and the standard VAR model. That is, oil price shocks had long-lasting effects on the foreign exchange rate, resulting in the depreciation of ZAR relative to USD over time. Additionally, oil price shocks reduced consumer prices, resulting in a deflationary effect in the long run. This study concluded that South Africa’s position as a net oil importer with a floating exchange rate renders the country vulnerable to short-term external shocks. Nonetheless, in the long term, the results indicated that the economy tends to adapt to oil price shocks over time. |
| format | Article |
| id | doaj-art-c50d8daffc32469fad162d27b8b21b09 |
| institution | Kabale University |
| issn | 2225-1146 |
| language | English |
| publishDate | 2025-02-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Econometrics |
| spelling | doaj-art-c50d8daffc32469fad162d27b8b21b092025-08-20T03:43:33ZengMDPI AGEconometrics2225-11462025-02-01131810.3390/econometrics13010008Comparative Analysis of VAR and SVAR Models in Assessing Oil Price Shocks and Exchange Rate Transmission to Consumer Prices in South AfricaLuyanda Majenge0Sakhile Mpungose1Simiso Msomi2School of Accounting, Economics & Finance, College of Law & Management Studies, University of KwaZulu-Natal, Durban 3629, South AfricaSchool of Accounting, Economics & Finance, College of Law & Management Studies, University of KwaZulu-Natal, Durban 3629, South AfricaSchool of Accounting, Economics & Finance, College of Law & Management Studies, University of KwaZulu-Natal, Durban 3629, South AfricaThis study compared standard VAR, SVAR with short-run restrictions, and SVAR with long-run restrictions to investigate the effects of oil price shocks and the foreign exchange rate (ZAR/USD) on consumer prices in South Africa after the 2008 financial crisis. The standard VAR model revealed that consumer prices responded positively to oil price shocks in the short term, whereas the foreign exchange rate (ZAR/USD) revealed a fluctuating currency over time. That is, the South African rand (ZAR) initially appreciated against the US dollar (USD) in response to oil price shocks (periods 1:7), followed by a depreciation in periods 8:12. Imposing short-run restrictions on the SVAR model revealed that the foreign exchange rate (ZAR/USD) reacted to oil price shocks in a manner similar to the VAR model, with ZAR appreciating during the initial periods (1:7) and subsequently depreciating in the later periods (8:12). Consumer prices responded positively to oil price shocks, causing consumer prices to increase in the short run, which is consistent with the VAR findings. However, imposing long-run restrictions on our SVAR model yielded results that contrasted with those obtained under short-run restrictions and the standard VAR model. That is, oil price shocks had long-lasting effects on the foreign exchange rate, resulting in the depreciation of ZAR relative to USD over time. Additionally, oil price shocks reduced consumer prices, resulting in a deflationary effect in the long run. This study concluded that South Africa’s position as a net oil importer with a floating exchange rate renders the country vulnerable to short-term external shocks. Nonetheless, in the long term, the results indicated that the economy tends to adapt to oil price shocks over time.https://www.mdpi.com/2225-1146/13/1/8VARSVARoil price shocksexchange rateconsumer pricesinflation |
| spellingShingle | Luyanda Majenge Sakhile Mpungose Simiso Msomi Comparative Analysis of VAR and SVAR Models in Assessing Oil Price Shocks and Exchange Rate Transmission to Consumer Prices in South Africa Econometrics VAR SVAR oil price shocks exchange rate consumer prices inflation |
| title | Comparative Analysis of VAR and SVAR Models in Assessing Oil Price Shocks and Exchange Rate Transmission to Consumer Prices in South Africa |
| title_full | Comparative Analysis of VAR and SVAR Models in Assessing Oil Price Shocks and Exchange Rate Transmission to Consumer Prices in South Africa |
| title_fullStr | Comparative Analysis of VAR and SVAR Models in Assessing Oil Price Shocks and Exchange Rate Transmission to Consumer Prices in South Africa |
| title_full_unstemmed | Comparative Analysis of VAR and SVAR Models in Assessing Oil Price Shocks and Exchange Rate Transmission to Consumer Prices in South Africa |
| title_short | Comparative Analysis of VAR and SVAR Models in Assessing Oil Price Shocks and Exchange Rate Transmission to Consumer Prices in South Africa |
| title_sort | comparative analysis of var and svar models in assessing oil price shocks and exchange rate transmission to consumer prices in south africa |
| topic | VAR SVAR oil price shocks exchange rate consumer prices inflation |
| url | https://www.mdpi.com/2225-1146/13/1/8 |
| work_keys_str_mv | AT luyandamajenge comparativeanalysisofvarandsvarmodelsinassessingoilpriceshocksandexchangeratetransmissiontoconsumerpricesinsouthafrica AT sakhilempungose comparativeanalysisofvarandsvarmodelsinassessingoilpriceshocksandexchangeratetransmissiontoconsumerpricesinsouthafrica AT simisomsomi comparativeanalysisofvarandsvarmodelsinassessingoilpriceshocksandexchangeratetransmissiontoconsumerpricesinsouthafrica |