Do oil prices drive agricultural commodity prices? Further evidence in a global bio-energy context

摘要

This study explores the causalities between oil and agricultural commodity prices to examine whether the vertical market integration model holds for global market. Considering structural changes, the long run nexus using full-sample data is found to be unstable, suggesting the causality test is not reliable. Instead a time-varying rolling-window technique is further employed to reexamine the dynamic causal relationships. The empirical results illustrate that the time-varying positive bidirectional causality exists between oil and agricultural prices over certain sub-periods, which supports the vertical market integration model that energy and agricultural prices can interact through direct biofuel channel and indirect input channel. Furthermore, our findings demonstrate that price transmission between two series occurs to agricultural commodities used both directly and indirectly in bio-energy productions. In order to support a relatively stable price level of oil and agricultural commodities, the system mandating global cooperation and concerted action should be expanded to maintain a strategic petroleum reserve. In addition, authorities should curb speculations in the commodity derivatives market. Moreover, the subsidy measure for particular commodities should be implemented, which is propitious to curb the contagious effect of sudden change in prices. (C) 2019 Elsevier Ltd. All rights reserved.