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