The Effect of Oil Price Uncertainty on Food Price in South Africa

This paper examines the effect of the volatility of oil
prices on food price in South Africa using monthly data covering the
period 2002:01 to 2014:09. Food price is measured by the South
African consumer price index for food while oil price is proxied by
the Brent crude oil. The study employs the GARCH-in-mean VAR
model, which allows the investigation of the effect of a negative and
positive shock in oil price volatility on food price. The model also
allows the oil price uncertainty to be measured as the conditional
standard deviation of a one-step-ahead forecast error of the change in
oil price. The results show that oil price uncertainty has a positive
and significant effect on food price in South Africa. The responses of
food price to a positive and negative oil price shocks is asymmetric.

• Goodness C. Aye

• Oil price volatility
• Food price
• Bivariate GARCH-in- mean VAR
• Asymmetric.

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