Oil Price Shocks and Economic Activity: The Asymmetric Cointegration Approach in South Africa

Abstract

This study examines the link between oil prices and economic activity proxied by gross domestic product in the context of South Africa. The study employs the asymmetric approach proposed by Schorderet (2004) and advanced by Lardic and Mignon (2008). Asymmetric cointegration is used because it is believed that increasing and decreasing oil prices do not have similar or equal impacts on economic activity. In this study we document evidence for an asymmetric response of economic activity to oil price shocks. Further, our findings suggest that negative oil price shocks are important relative to positive oil price shocks.