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

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  • Ubilava, David
  • Holt, Matthew T.

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.

Suggested Citation

  • Ubilava, David & Holt, Matthew T., 2009. "Nonlinearities in the World Vegetable Oil Price System: El Nino Effects," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49360, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea09:49360
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    1. repec:spr:ssefpa:v:9:y:2017:i:4:d:10.1007_s12571-017-0702-2 is not listed on IDEAS
    2. Jesse B. Tack & David Ubilava, 2015. "Climate and agricultural risk: measuring the effect of ENSO on U.S. crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 46(2), pages 245-257, March.
    3. Smith, Sarah C. & Ubilava, David, 2017. "The El Niño Southern Oscillation and Economic Growth in the Developing World," Working Papers 2017-11, University of Sydney, School of Economics, revised May 2017.
    4. Ubilava, David, 2016. "The Role of El Niño Southern Oscillation in Commodity Price Movement and Predictability," Working Papers 2016-10, University of Sydney, School of Economics.
    5. David Ubilava, 2014. "El Niño Southern Oscillation and the fishmeal–soya bean meal price ratio: regime-dependent dynamics revisited," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 41(4), pages 583-604.
    6. Daniel Parra-Amado & Davinson Stev Abril-Salcedo & Luis Fernando Melo-Velandia, 2016. "Impactos de los fenómenos climáticos sobre el precio de los alimentos en Colombia," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 34(80), pages 146-158, June.
    7. Peri, Massimo, 2015. "Cliamte Variability and Agricultural Price volatility: the case of corn and soybeans," 2015 Conference, August 9-14, 2015, Milan, Italy 212623, International Association of Agricultural Economists.
    8. David Ubilava, 2012. "El Niño, La Niña, and world coffee price dynamics," Agricultural Economics, International Association of Agricultural Economists, vol. 43(1), pages 17-26, January.
    9. Listorti, Giulia & Esposti, Roberto, 2012. "Horizontal Price Transmission in Agricultural Markets: Fundamental Concepts and Open Empirical Issues," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), issue 1, April.
    10. repec:eee:wdevel:v:96:y:2017:i:c:p:490-502 is not listed on IDEAS
    11. Ubilava, David, 2017. "The ENSO Effect and Asymmetries in Wheat Price Dynamics," World Development, Elsevier, vol. 96(C), pages 490-502.
    12. Bernhard Brümmer & Olaf Korn & Kristina Schlüßler & Tinoush Jamali Jaghdani, 2016. "Volatility in Oilseeds and Vegetable Oils Markets: Drivers and Spillovers," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(3), pages 685-705, September.
    13. Ubilava, David & Villoria, Nelson, 2013. "Do the Trade Winds Alter the Trade Flow? Assessing Impacts of ENSO Shocks on World Cereal Supply," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150516, Agricultural and Applied Economics Association.
    14. Ubilava, David & Orlowski, Jan, 2016. "The Predictive Content of Climate Anomalies for Agricultural Production: Does ENSO Really Matter?," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236281, Agricultural and Applied Economics Association.
    15. Jesse Tack & David Ubilava, 2013. "The effect of El Niño Southern Oscillation on U.S. corn production and downside risk," Climatic Change, Springer, vol. 121(4), pages 689-700, December.
    16. Pede, Valerien O. & Valera, Harold Glenn A. & Alam, Mohammad Jahangir & McKenzie, Andrew M., 2013. "Nonlinearities in Regional Rice Prices in the Philippines: Evidence from a Smooth Transition Autoregressive (STAR) Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150246, Agricultural and Applied Economics Association.

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