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Time-Varying Causality between Oil and Commodity Prices in the Presence of Structural Breaks and Nonlinearity - Causalità time-varying tra petrolio e prezzi delle materie prime in presenza di break strutturali e di non-linearità

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The recent commodity price dynamics has spurred interest to understand determinants of commodity price movements. This paper investigates the causal relationship between oil prices and the prices of 25 other commodities, which include both metals and agricultural products, in the presence of instability and nonlinearity. For this purpose, we make use of a long annual time series dataset spanning from 1900 to 2011, and analyze time-varying Granger causality test, since the inference drawn based on linear Granger causality tests could be invalid due to structural breaks and nonlinearity – which we show are present in the relationship between the variables of interest. We find that, under the case of time-varying causality there are fewer rejections of the null than under the standard linear Granger causality test, thus highlighting the importance of accounting for instability and nonlinearity. Relying on the time-varying causality test, we observe stronger evidence of other commodity prices in predicting (in-sample) oil prices (15 cases) than the other way around (7 cases). - La recente dinamica dei prezzi delle materie prime ha stimolato l’interesse verso lo studio delle determinanti delle variazioni di tali prezzi. Questo studio esamina la relazione causale tra prezzi petroliferi e i prezzi di altre 25 materie prime, inclusi metalli e prodotti agricoli, in presenza di instabilità e nonlinearità. A questo scopo vengono utilizzate numerose serie di dati annuali dal 1900 al 2011 e si applica il test di Granger-causality time-varying, in quanto i risultati dei test lineari potrebbero essere non validi a causa dei break strutturali e delle non-linearità presenti nella relazione tra le variabili considerate. I risultati evidenziano che nel caso della causalità time-varying ci sono meno rigetti del valore zero che nel caso del test standard lineare di Granger, segnalando così l’importanza dell’instabilità e della non-linearità. Sulla base del test di causalità time-varying osserviamo una maggiore capacità dei prezzi delle altre materie prime nel predire (in campione) i prezzi petroliferi che il viceversa (sette casi).

Suggested Citation

  • Gupta, Rangan & Kean, Gbeada Josiane Seu Epse & Tsebe, Mpho Asnath & Tsoanamatsie, Nthabiseng & Sato, João Ricardo, 2015. "Time-Varying Causality between Oil and Commodity Prices in the Presence of Structural Breaks and Nonlinearity - Causalità time-varying tra petrolio e prezzi delle materie prime in presenza di break st," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 68(4), pages 469-491.
  • Handle: RePEc:ris:ecoint:0764
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    Keywords

    Oil Prices; Commodity Prices; Stability; Causality; Linear; Time-Varying;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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