The Determinants of Risk Transmission between Oil and Agricultural Prices: An IPVAR Approach

Tan Ngoc Vu, Chi Ho (), Thang Cong Nguyen and Duc Hong Vo
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Tan Ngoc Vu: Business and Economics Research Group, Ho Chi Minh City Open University, District 3, Ho Chi Minh City 7000, Vietnam
Thang Cong Nguyen: Business and Economics Research Group, Ho Chi Minh City Open University, District 3, Ho Chi Minh City 7000, Vietnam
Duc Hong Vo: Business and Economics Research Group, Ho Chi Minh City Open University, District 3, Ho Chi Minh City 7000, Vietnam

Agriculture, 2020, vol. 10, issue 4, 1-14

Abstract: Previous empirical studies have generally considered biofuel as a main factor in changes in the relationship between oil and agricultural prices because these changes happened after U.S. biofuel policies were implemented. However, it has been argued that other economic factors can trigger the correlation of these two markets. This study was conducted to examine the transmission mechanisms that influence the relationship between oil and agricultural prices. This paper used the interacted panel vector autoregressive framework, which allowed us to investigate the effect of biofuel production under different regimes of exchange rates and global economic activities. The responses of agricultural prices to oil prices at different levels of biofuel production, global economic activity, and exchange rates were examined in this paper. Data on prices for 10 agricultural commodities—barley, beans, corn, cotton, oats, rice, sorghum, soybean, sunflower, and wheat—from January 2000 to May 2019, were used in this study. Our findings indicate that oil prices can affect agricultural prices through biofuel and exchange rates. Moreover, the effect of biofuel depends on the level of global economic activity and exchange rates. We offer some policy implications on the basis of our findings in this study.

Keywords: agricultural prices; biofuel; exchange rate; IPVAR (search for similar items in EconPapers)
JEL-codes: Q1 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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