Market integration and price transmission in selected area of the South African market
Abstract
The present study addresses the issue of the market integration of an aspect of the South
African market. The researcher investigates the mechanism of asymmetric price
transmission using twelve macroeconomic variables. The analysis of price transmission of
the select area of the South African market is useful for making inferences about the
competitive environment and efficiency of the market in South Africa. Furthermore, this
analysis is important for policymakers considering the challenges faced by the South
African market in relation to world market.
Using cointegration, causality, vector error correction mechanism, impulse response
function and variance decomposition methods, the researcher finds asymmetries in the
selected price chains. The empirical findings give evidence of existence of long-run
equilibrium relationship between producer and consumer prices of goods, and that
producer prices of goods Granger-causes consumer prices of goods, but not the reverse.
The findings also indicate that transmission between consumer prices of goods and
producer prices of goods is asymmetrical. It is further established that shocks from money
supply M1 and GDP are the most important determinants in the variation in the consumer
prices for housing while shocks from exchange rates and GDP were the most important
determinants in the variation in producer prices for manufacturing food . An expansion of
the study is needed to help improve the understanding of asymmetries in the South
African market.