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The Relationship between Oil and Agricultural Commodity Prices: A Quantile Causality Approach

Listed author(s):
  • Mehmet Balcilar

    ()

    (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus , via Mersin 10,Turkey;Department of Economics, University of Pretoria, Pretoria, 0002, South Africa.)

  • Shinhye Chang

    ()

    (Department of Economics, University of Pretoria)

  • Rangan Gupta

    ()

    (Department of Economics, University of Pretoria)

  • Vanessa Kasongo

    ()

    (Department of Economics, University of Pretoria)

  • Clement Kyei

    ()

    (Department of Economics, University of Pretoria)

This paper investigates causality between oil prices and the prices of agricultural commodities in South Africa. We use daily data covering the period April 19, 2005 to July 31, 2014 for oil prices and the prices of soya beans, wheat, sunflower and corn. The test for Granger causality in conditional quantiles as proposed by Jeong et al., (2012) was employed. Our findings show that the effect of oil prices on agricultural commodity prices varies across the different quantiles of the conditional distribution. The impact on the tails is lower compared to the rest of the distribution. However, the highest impact is not necessarily at the mean. We show that due to nonlinear dependence between oil prices and agricultural commodity prices, regular Granger causality provides misleading results and also fails to characterize the relationship over the entire conditional joint distribution of the variables.

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Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201468.

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Length: 19 pages
Date of creation: Nov 2014
Handle: RePEc:pre:wpaper:201468
Contact details of provider: Postal:
PRETORIA, 0002

Phone: (+2712) 420 2413
Fax: (+2712) 362-5207
Web page: http://www.up.ac.za/economics

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