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FUEL PRICE AND EXCHANGE RATE DYNAMICS IN SOUTH AFRICA: A TIME SERIES ANALYSIS

Ferdinand Niyimbanira

DOI: 10.22495/cocv12i4c1p2

Abstract

This paper empirically examined the relationship between fuel price and exchange rate in South Africa. Monthly data spanning over the period of January 2001 to December 2013 was used while adopting the cointegration method. The Augumented Dickey Fuller (ADF) test showed that all variables (Fuel Price, Exchange rate and New Vehicle sales) became stationary after the first difference. The results from Johansen cointegration test indicated no cointegrating equation, indicating that series were not cointegrated.The findings show that fuel price is affected by at least its two previous month prices. Both explanatory variable coefficients (0.541228 and -0.368649), show that fuel price will be increased by 20 cents Rand due to its previous two month prices. The results from impulsive test confirmed VAR test results. This paper provided evidence that there was a causal link from the exchange rates to petrol price during last one sub-period. The implication therefore is that in South Africa an increase of the fuel price is a response to the Rand value fluctuations ceteris paribus. Based on the findings of the study, policy implications and suggestion for future research are made.

Keywords: Fuel Price, Exchange Rate, Cointegration, Vector Autoregressive (VAR), South Africa

How to cite this paper: Niyimbanira, F. (2015). Fuel price and exchange rate dynamics in South Africa: A time series analysis. Corporate Ownership & Control, 12(4-1), 185-193. http://doi.org/10.22495/cocv12i4c1p2

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