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Nonlinearities in the World Vegetable Oil Price System: El Nino Effects

David Ubilava () and Matthew Holt ()

No 49360, 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin from Agricultural and Applied Economics Association

Abstract: In this research we estimate the effect of El Nino Southern Oscillation (ENSO) over time on market dynamics for eight major vegetable oil prices. We estimate a system for vegetable oil prices by using a smooth transition vector error correction model (STVECM) to analyze impacts of ENSO events on production, and, more interestingly, their asymmetric nature. The results of estimated Exponential STVECM and Quadratic STAR models, respectively for the system of oil price equations and the ENSO variable regressions, suggest a smooth transition between ENSO regimes, and provide a better overall fit to the data than do linear models. Effects of the ENSO shock are analyzed using generalized impulse-response functions (GIRFs). The non-linear nature of these shocks is apparent, as the GIRFs are observed to be asymmetric depending on whether ENSO shocks are positive or negative. For most vegetable oil prices an ENSO shock has a permanent effect, meaning that prices advance to a new equilibrium level. Generally, a positive ENSO shock results in increased prices, and the opposite is true for the negative ENSO shock. The magnitude of the price change is largest for the coconut oil and palm kernel oil, and is the smallest for the ground nut oil. Also, it takes approximately two years for prices to stabilize at a new equilibrium level after the shock.

Keywords: Demand and Price Analysis; Environmental Economics and Policy; Research Methods/ Statistical Methods (search for similar items in EconPapers)
Pages: 27
Date: 2009
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Related works:
Journal Article: El Niño southern oscillation and its effects on world vegetable oil prices: assessing asymmetries using smooth transition models (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea09:49360

DOI: 10.22004/ag.econ.49360

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