Impact Analysis of the External Shocks on the Prices of Malaysian Crude Palm Oil: Evidence from a Structural Vector Autoregressive Model

Mohd Syafiq Sabri, Norlin Khalid (), Abdul Hafizh Mohd Azam () and Tamat Sarmidi
Additional contact information
Mohd Syafiq Sabri: Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Malaysia
Norlin Khalid: Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Malaysia
Abdul Hafizh Mohd Azam: Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Malaysia
Tamat Sarmidi: Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Malaysia

Mathematics, 2022, vol. 10, issue 23, 1-22

Abstract: Palm oil prices, similar to other edible oils and commodity prices, are highly sensitive to external shocks which have become particularly prominent in the wake of COVID-19 pandemic. The non-stationary nature of the palm oil price complicates the modelling and forecasting of its behaviour. This study investigates the impact of the external and internal shocks on Malaysian palm oil (MPO) prices using the SVAR methodology. The SVAR model utilised in this study is unique in that it employs the news-based indices called the Infectious Disease Volatility Tracker (IDVT) and the Economic Policy Uncertainty Index (EPUI) as parts of the time series. News-based indices can potentially uncover essential proxies for economic and policy conditions, as well as portend the investment decision-making and in turn the commodity prices. The rationale behind this choice is to capture the impact from perception and news-based indices on the Malaysian palm oil prices. The empirical result from impulse–response function (IRF) shows that the shock in IDVT has a significant positive impact on Malaysian palm oil prices suggesting the MPO is exposed to the external factor. In addition, amongst the external variables tested, IDVT shows the longest lasting and highest positive impact on Malaysian palm oil prices. These results are in accordance with forecast error variance decomposition which indicates that IDVT shock can explain a huge portion of MPO prices especially over a longer period. The model specified in this study is also sufficiently stable and robust. This study contributes to the literature the significance of news-based indices and their capability in influencing public perception on the current macroeconomic condition, hence influencing the decision-making process of economic agents.

Keywords: palm oil; structural vector autoregressive (SVAR); COVID-19; infectious disease volatility tracker; economic policy uncertainty index (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2227-7390/10/23/4599/pdf (application/pdf)
https://www.mdpi.com/2227-7390/10/23/4599/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jmathe:v:10:y:2022:i:23:p:4599-:d:993725

Access Statistics for this article

Mathematics is currently edited by Ms. Emma He

More articles in Mathematics from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().