Abstract:
Causality testing procedures in the frequency domain and the time domain are employed to
analyse the relationship between oil prices and interest rate in South Africa, covering the time
period 1936:1 to 2013:11. Results show that the time domain Granger causality test fails to
reject the null hypothesis for the full-sample, and the test rejects the null hypothesis for the
3rd sub-sample (1998:12-2013:11), following structural break tests. Results for the frequency
domain causality test show that, for both of these samples the null hypothesis is rejected at
certain frequencies; at higher frequencies for the full sample, and at lower frequencies for the
3rd sample. With the majority of the 3rd sub-sample period coinciding with inflation
targeting regime, results highlight that the South African Reserve Bank (SARB) seems to
have systematically responded to oil price shocks.
