The impact of oil price fluctuations on the South African exchange rate: Evidence from symmetric and asymmetric analyses

Abstract

This article investigates the nature of the relationship and the effects of changes in oil prices on South Africa's exchange rate. It fills an essential gap in comprehending how oil price shocks influence emerging market economic dynamics. Through the use of a Bayesian Vector Auto-Regressive (BVAR) model, this study finds that the initial oil price shock to exchange rates is weakly positive in the short run, reflecting a 1% increase in oil prices, leading to a 0.08% exchange rate appreciation. The study also finds an asymmetrical relationship between oil prices and exchange rates. These effects become more pronounced when global uncertainty is at its peak. These findings have implications for shaping policies in South Africa. Exchange rate stability strategies could involve diversifying energy sources and introducing risk-hedging methods while striving for stability through flexible monetary and fiscal policies. This research also adds to the ongoing conversation about the susceptibility of emerging market currencies to external pressures, serving as a reference point for examining comparable economies. This research enriches the existing body of knowledge by addressing methodological gaps and providing a contemporary analysis of South Africa's exchange rate dynamics in a post-crisis global economy.

Keywords: {'name': 'Oil prices'}, {'name': 'Asymmetry'}, {'name': 'South African Rand'}, {'name': 'Exchange rates'}, {'name': 'Emerging market economies'}

Authors & affiliations

Malibongwe Nyathi
Tshwane University of Technology

Noko Moabelo
University of KwaZulu-Natal

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