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Cointegration and Causality Analysis of World Vegetable Oil and Crude Oil Prices

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Author Info
Yu, Tun-Hsiang Edward
Bessler, David A.
Fuller, Stephen

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Abstract

Because of the recent soaring petroleum price and growing environmental concerns, biodiesel has become an important alternative fuel. Biodiesel is the mono alky esters made from a vegetable oil, such as soybean or rapeseed oil, or sometimes from animal fats. The escalation in world petroleum price has stimulated the demand for biodiesel, which consequently expanded the use of vegetable oils. This paper investigates the long-run interdependence between major edible oil prices and examines the dynamic relationship between vegetable and crude oil prices. The data consists of 378 weekly observations extending from the first week of January in 1999 to the fourth week of March in 2006. We apply time-series analytical mechanisms and directed acyclic graphs to four major traded edible oils prices, including soybean, sunflower, rapeseed and palm oils, along with one weighted average world crude oil price. Tentative results suggest one long-run cointegration relationship among those five oil prices. Also, the edible oil markets are well linked in contemporaneous time with the palm oil market initiating the new information; however, soybean oil price dominates the edible oil markets in the long run. The influence of crude oil price on edible oil prices is not significant over the study period.

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Publisher Info
Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21439.

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Date of creation: 2006
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Handle: RePEc:ags:aaea06:21439

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Keywords: Resource /Energy Economics and Policy;

References listed on IDEAS
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  1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
  2. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 53-78, January. [Downloadable!] (restricted)
  3. FAPRI Staff, 2005. "FAPRI 2005 U.S. and World Agricultural Outlook," Food and Agricultural Policy Research Institute (FAPRI) Publications 05-fsr1, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University. [Downloadable!]
    Other versions:
  4. Selva Demiralp & Kevin D. Hoover, 2003. "Searching for the Causal Structure of a Vector Autoregression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 745-767, December. [Downloadable!] (restricted)
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  5. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January. [Downloadable!] (restricted)
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  6. David A. Bessler & Seongpyo Lee, 2002. "Money and prices: U.S. Data 1869-1914 (A study with directed graphs)," Empirical Economics, Springer, vol. 27(3), pages 427-446. [Downloadable!] (restricted)
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  1. Peri, M. & Baldi, L., 2008. "Biodiesel and vegetable oil market in European Union: some evidences from threshold cointegration analysis," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43971, European Association of Agricultural Economists. [Downloadable!]
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