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Modeling the Effect of Oil Price on Global Fertilizer Prices

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Author Info

  • Ping-Yu Chen

    (Department of Applied Economics, National Chung Hsing University)

  • Chia-Lin Chang

    (Department of Applied Economics, National Chung Hsing University)

  • Chi-Chung Chen

    (Department of Applied Economics, National Chung Hsing University)

  • Michael McAleer

    (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, and Institute of Economic Research, Kyoto University)

Abstract

The main purpose of this paper is to evaluate the effect of crude oil price on global fertilizer prices in both the mean and volatility. The endogenous structural breakpoint unit root test, the autoregressive distributed lag (ARDL) model, and alternative volatility models, including the generalized autoregressive conditional heteroskedasticity (GARCH) model, Exponential GARCH (EGARCH) model, and GJR model, are used to investigate the relationship between crude oil price and six global fertilizer prices. Weekly data for 2003-2008 for the seven price series are analyzed. The empirical results from ARDL show that most fertilizer prices are significantly affected by the crude oil price, which explains why global fertilizer prices reached a peak in 2008. We also find that that the volatility of global fertilizer prices and crude oil price from March to December 2008 are higher than in other periods, and that the peak crude oil price caused greater volatility in the crude oil price and global fertilizer prices. As volatility invokes financial risk, the relationship between oil price and global fertilizer prices and their associated volatility is important for public policy relating to the development of optimal energy use, global agricultural production, and financial integration.

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File URL: http://www.kier.kyoto-u.ac.jp/DP/DP722.pdf
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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 722.

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Length: 36pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:kyo:wpaper:722

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Keywords: Volatility; Global fertilizer price; Crude oil price; Non-renewable fertilizers; Structural breakpoint unit root test;

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