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The lead-lag relationship between the rubber price and inflation rate: an evidence from Malaysia

Author

Listed:
  • Hamid, Zuraini
  • Masih, Mansur

Abstract

The objective of this paper to study the causality between inflation and rubber price in Malaysia. This study is the first attempt to investigate the causality by applying Auto Regressive Distributive Lag (ARDL) model which has taken care of a major limitation of the conventional co-integrating tests which suffer from pre-test biases between the variables. Error Correction Model (ECM) using ARDL approach, Variance Decompositions (VDC) technique and Impulse Response Functions (IRF) are also applied to test the exogeneity and endogeneity of the variables and reaction of these variables when a shock is imposed on them. The data used in this study are monthly data from Datastream comprising of inflation rate (CPI as the proxy), Malaysian rubber price: SMR20 and SMR10, Thailand rubber price, US synthetic rubber price and exchange rate. From the study, it is noted that inflation leads the Malaysian rubber price, Thailand rubber price, synthetic rubber price and exchange rate, respectively. This has an important policy implication for the national policy makers and rubber regulators in developing rubber industry in Malaysia.

Suggested Citation

  • Hamid, Zuraini & Masih, Mansur, 2017. "The lead-lag relationship between the rubber price and inflation rate: an evidence from Malaysia," MPRA Paper 95564, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95564
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    References listed on IDEAS

    as
    1. Browne, Frank & Cronin, David, 2010. "Commodity prices, money and inflation," Journal of Economics and Business, Elsevier, vol. 62(4), pages 331-345, July.
    2. Renuka Mahadevan & Sandy Suardi, 2013. "An Examination Of Linear And Nonlinear Causal Relationships Between Commodity Prices And U.S. Inflation," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 1932-1947, October.
    3. Dean Scrimgeour, 2015. "Commodity Price Responses to Monetary Policy Surprises," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 88-102.
    4. Burger, Kees & Smit, Hidde & Vogelvang, Ben, 2002. "Exchange Rates and Natural Rubber Prices, the Effect of the Asian Crisis," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24958, European Association of Agricultural Economists.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Rubber; Inflation; Synthetic; ARDL; ECM; VDC; Malaysia;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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