DOES INDONESIA AS THE WORLD LARGEST PALM OIL PRODUCING COUNTRY DETERMINE THE WORLD CRUDE PALM OIL PRICE VOLATILITY?

Syahril (), Raja Masbar (), M. Shabri Abd. Majid and Sofyan Syahnur ()
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Syahril: Ph.D. Scholar in Economics, Universitas Syiah Kuala, Indonesia, and Lecturer of the Faculty of Economics and Business, Universitas Teuku Umar (UTU), Indonesia
Raja Masbar: Professor, Faculty of Economics and Business, Universitas Syiah Kuala, Indonesia
Sofyan Syahnur: Senior Lecturer, Faculty of Economics and Business, Universitas Syiah Kuala, Indonesia

Regional Science Inquiry, 2019, vol. XI, issue 2, 93-104

Abstract: This study contributes to the existing literature on the current phenomena of a higher level of world palm oil volatility by exploring the bivariate causal relationship between Indonesian and Malaysian CPO exports, the world crude and soybean oils, exchange rate, and the world CPO price volatility using the bivariate Granger causality analysis. It also attempts to explore the extent to which shocks in these variables influenced the world CPO price volatility using the impulse response functions and variance decomposition analyses over the period from January 2008 to December 2017. The study found that the world CPO price volatility is mainly Granger-caused by the changes in the real exchange rate. The Indonesian CPO export only found to have a bidirectional Granger causal relationship with the Malaysian CPO export, while the Malaysian CPO exports are Granger-caused by the world CPO price volatility, world crude oil price, and world soybean oil price. Our findings suggested that macroeconomic policy harmonization on the CPO price and production as well as exchange rate policy should be innovatively designed between Indonesia and Malaysia through the existing Council of Palm Oil Producing Countries (CPOPC) if these counties intend to gain more revenue from their CPO exports in the future.

Keywords: Dynamic causality; World CPO price volatility; World commodity markets; Macroeconomic policy harmonization; International CPO trade (search for similar items in EconPapers)
JEL-codes: C53 F42 L13 Q17 Q37 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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