Wavelet analysis and energy-based measures for oil-food price relationship as a footprint of financialisation effect

Loretta Mastroeni, Alessandro Mazzoccoli, Greta Quaresima and Pierluigi Vellucci

Papers from arXiv.org

Abstract: In this paper we exploit the wavelet analysis approach to investigate oil-food price correlation and its determinants in the domains of time and frequency. Wavelet analysis is able to differentiate high frequency from low frequency movements which correspond, respectively, to short and long run dynamics. We show that the significant local correlation between food and oil is only apparent and this is mainly due both to the activity of commodity index investments and, to a lesser extent, to a growing demand from emerging economies. Moreover, the activity of commodity index investments gives evidence of the overall financialisation process. In addition, we employ wavelet entropy to assess the predictability of the time series under consideration at different frequencies. We find that some variables share a similar predictability structure with food and oil. These variables are the ones that move the most along with oil and food. We also introduce a novel measure, the Cross Wavelet Energy Entropy Measure (CWEEM), based on wavelet transformation and information entropy, with the aim of quantifying the intrinsic predictability of food and oil given demand from emerging economies, commodity index investments, financial stress, and global economic activity. The results show that these dynamics are best predicted by global economic activity at all frequencies and by demand from emerging economies and commodity index investments at high frequencies only.

Date: 2021-04, Revised 2022-03
New Economics Papers: this item is included in nep-agr, nep-cmp and nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://arxiv.org/pdf/2104.11891 Latest version (application/pdf)

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:arx:papers:2104.11891

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().