Disentangled oil shocks and macroeconomic policy uncertainty in South Africa

Abstract

This study examines the spillovers among oil shocks and macroeconomic policy uncertainty in South Africa between January 1990 to July 2022. The study arrives at some important findings.From the Diebold and Yılmaz (2012) connectedness analysis, which measures average connectedness, we find a moderate connection between oil shocks and macroeconomic policy uncertainty phenomena. Conversely, the connections among oil shocks and macroeconomic policy uncertainty are greatest at the low and upper quantiles. That is, when these phenomena are experiencing extreme values, the connectedness among them is formidable. Moreover, the study finds that over the period of assessment, macroeconomic policy uncertainty phenomena are net receivers at lower quantiles. Meanwhile, unlike financial policy uncertainty, economic policy uncertainty and political uncertainty become net transmitters at the middle and upper quantiles. On the other hand, the disaggregated oil shocks are net transmitters (receivers) at the low (median) quantiles. Interestingly, their receiver/transmitter roles are mixed at the upper quantile.Finally, using the Quantile-on-Quantile regression analysis, we find that oil shocks generally increase (reduce) macroeconomic policy uncertainty when this uncertainty is already low (high).