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n Annual Proceedings of the South African Statistical Association Conference - Modelling extreme co-movement between oil prices and economic growth

Volume 2019 Number Congress 1
  • ISSN :

Abstract

The current study investigates an extreme co-movement between oil prices and economic growth in South Africa (SA). To achieve our objective, a stationary hybrid threshold vector error correction model-multivariate generalised hyperbolic (MGH)-skew-Student’s t-distribution- copula (TVECM-MGH-skew-Student’s t-distribution-copula)was estimated. Our results indicate that oil prices and economic growth move together in the long-run. This is according to the observed cointergrating parameter δi,j of the TVECM which is highly significant in both regimes. The MGH distribution showed that the lower tail has an exponentially decaying behaviour while the upper tail has polynomial decaying behaviour. This shows that the moments at the tails of this distribution are higher than those of a normal distribution, implying an extreme movement of 80.8%. To check for extreme dependence, the results of the Archimax Copula showed a moderate dependence between oil prices and economic growth. However, negative news has a larger impact on the degree of dependence than positive news. Contagion effects are observed in both the oil price and economic growth in SA.

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/content/journal/10520/EJC-19eaa98ae8
2019-12-01
2020-09-30

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