Spillover effects of World oil prices on food prices: evidence for Asia and Pacific countries

Transcription

1 Spillover effecs of World oil prices on food prices: evidence for Asi nd Pcific counries Frdous Alom, Ber Wrd, Biding Hu Deprmen of Accouning, Economics nd Finnce, Lincoln Universiy, New Zelnd ABSTRACT This sudy invesiges he men nd voliliy spillover effecs of World oil prices on food prices for seleced Asi nd Pcific counries including Ausrli, New Zelnd, Souh Kore, Singpore, Hong Kong, Tiwn, Indi nd Thilnd. The reserch employs vecor uoregression (VAR) nd GARCHfmily models using dily observions for he Jnury99 o 3 April period, spliing he d ino wo subsmples 99 nd. The mjor empiricl findings of he sudy re s follows. World oil prices posiively influence food prices of he seleced counries boh in men nd in voliliy, hough he mgniudes of effecs differ from counry o counry for differen ime periods. The effecs re found mosly in he shor run bu no in he long run. Sronger men nd voliliy spillover effecs re found for he more recen subsmple period suggesing incresing inerdependence beween World oil nd Asi Pcific food mrkes in recen imes. In erms of men spillover effecs ne food imporer counries food price show sronger effecs o he shocks, wheres in erms of voliliy spillover effecs no disincion in bsorbing he World oil shocks cn be mde beween exporers nd imporers. The findings sugges h oil prices should be ken ino considerion in policy preprion nd forecsing purposes for food prices. Keywords: Oil price; food price; men; voliliy; spillover

2 . Inroducion The skyrockeing rend of world oil nd food prices in recen yers hs rced he enion of concerned observers. The nexus beween hese wo prices is now well documened in boh medi nd cdemic lierure for differen resons nd recen surging of hese prices lso dded ddiionl enion o he nlyss of governmens, inernionl nd prive reserch orgnizions(abo e l., 9). Hence, he impc of oil prices on food prices hs been sudied from differen viewpoins. I is believed h food prices re immensely influenced by world oil prices becuse griculure is rdiionlly energy inensive nd hus oil prices hve direc linkge wih griculurl commodiy prices. When oil price increses griculurl inpu prices lso increse, ulimely riggering he griculurl commodiy price hikes (Hnson e l., 993; Nzlioglu nd Soys, ). One of he mny resons for he rise in food prices is he increse in peroleum prices. A number of sudies hve focused on he cuses of food price hike emphsising he fcors reled o peroleum usge nd price; for exmple, incresed demnd for biofuel s n lernive of convenionl fossil fuel hs been idenified s one of he fcors of he food price surge (Hedey nd Fn, ; Michell, ; Rosegrn e l., ). Few oher sudies lso show h increses in oil nd mel prices led he jump in food prices (Rdezki, ; Hedey nd Fn, ; Du e l., ). A few sudies hve del wih he nlysis of spillover effecs of oil price on food prices. Bffes (7) exmined he effec of oil prices on 3 inernionlly rded primry commodiy prices including food nd found h he ferilizer price index hs shown highes pss hrough of ny griculurl commodiy. Alghlih () poined ou h in n oil exporing counry like Trinidd nd Tobgo he food price is lrgely influenced by higher oil prices. Du e l. () pplying Byesin economeric nlysis documened evidence of voliliy spillovers mong crude oil, corn nd whe mrkes. In he sme line Esmeili nd Shokoohi (), using principl componen nlysis, rgued h he oil price index hs n influence on he food price index. Relionships beween oil nd food prices were lso modelled by Chen e l. (), documening h globl grin prices for corn, soyben nd whe re significnly influenced by he chnges in crude oil prices. The impc of crude oil prices on vegeble oil price is found o be posiive s discussed in Abdel nd Arshd (). Despie hving exensive evidence of posiive relionships beween oil nd griculurl commodiy prices some sudies concluded h here is no significn influence of oil prices

3 on food prices.for exmple, Nzlioglu nd Soys () reveled in he cse of Turkey h oil prices do no hve ny direc or indirec impc on griculurl commodiy prices. Yu e l. () by pplying coinegrion pproch o World crude oil prices nd se of edible oil prices concluded h World oil price does no exer ny influence on edible oil prices. Kllioglu nd Soys (9) lso repors similr resuls h World oil prices do no hve ny significn influence on World food prices nd griculurl rw merils prices. In sudy in he conex of Chin s corn, soyben, nd pork prices for he period of Jnury o Ocober 7 Zhng nd Reed () minined h World crude oil prices re no he fcors predominely conribuing o he recen surging of seleced griculurl commodiy prices. However, o he bes of our knowledge, here is derh of sudies of he impc of World oil prices on food prices using dily d se in he syle of finncil sse modelling wih regrd o men nd voliliy spillover effecs. This seems o be priculrly rue in he conex of Asi nd Pcific counries. This opic, however, wrrns he enion of reserchers now, no only due o is impornce for socil well being, bu lso becuse of he fc h food prices, priculrly food commodiy fuure prices, re gining populr posiions in he porfolios of fund mngers much s crude oil prices hve (Robles e l., 9; Gilber, ). Hence, he objecive of he curren sudy is o explore he men nd voliliy spillover effecs of World oil prices on food prices in he conex of se of Asi nd Pcific counries nmely Ausrli, New Zelnd, Kore, Singpore, Hong Kong, Tiwn, Indi nd Thilnd. The sudy re is combinion of boh ne food exporers nd imporers wih common feure of heir ne oil imporer sus. Ausrli, New Zelnd, Indi nd Thilnd re regrded s ne food exporer counries. Hence he empiricl findings w permi inferences bou similriies nd differences in erms of he effecs of oil price shocks. The reminder of he pper is srucured s follows. The nex secion oulines he sources of d obined nd he sisicl properies of boh oil nd food price d. Secion 3 delinees he mehodology used long wih he model frmework for boh univrie nd mulivrie nlysis. Secion repors resuls nd discusses he min empiricl findings while he ls secion concludes he pper.

4 . D nd heir properies This sudy uses dily oil nd food producer price indices for Jnury 99 o April provided by DSrem. The smple period is chosen bsed on he vilbiliy of d for ll required series. For oil world inegred series (OP) nd for food prices inegred food producer price indices for Ausrli (AFP), New Zelnd (NFP), Kore (KFP), Singpore (SFP), Hong Kong (HFP), Tiwn (TFP), Indi (IFP) nd Thilnd (THFP) re chosen. Food price increses experienced shrp growh fer nd so we exmine he effecs of oil prices on food prices in hree differen ime periods, by esiming models in disinc ime periods, nmely full smple Jnury 99 o April, erly subsmple from Jnury 99 o December nd les subsmple from Jnury o April. As consequence, observions for full smple,, observions for he erly subsmple nd,7 observions for he les subsmple re uilized. Tble depics summry sisics of food nd oil prices over he full smple period. The mesure of voliliy, sndrd deviion, is high for ll of he price series which bsiclly ells bou he high voliliy of food nd oil prices. All price series re posiively skewed excep he New Zelnd food price index. Th mens ll oher series hve long righ il nd New Zelnd food price index hs long lef il. The vlues of kurosis re close o hree in ll cses excep New Zelnd implying disribuions re more peked hn norml. None of he series shows ny evidence of norml disribuion becuse he JrqueBer sisics rejec he null hypohesis of normliy ny level of significnce for every series of d. The LB Qs indices high evidence of uocorrelion nd nonconsn vrinces. The lower pnel of Tble displys he properies of reurns series. Reurns series re clculed by using sndrd logrihmic echnique R = ln(p /P ) where P is he price for curren dy while P represens price for he previous dy. Reurns series seem o hve he ypicl chrcerisics of finncil vribles which cn be seen in Figure. Figure shows h reurns for boh oil nd food price follow voliliy clusering. The evidence of long lef ils cn be seen for he food price reurns of Ausrli nd Kore long wih inernionl oil prices. Excess kurosis is greer hn 3 in ll cses. The exisence of sndrd deviions greer hn men reurns, non normliy, nd evidence of uocorrelion clerly sugges he d o be nlyzed by GARCH ype models. Reurns series re used for esimion purposes wihin he frmework of univrie nd mulivrie GARCH models. From he summry sisics i seems eviden h oil nd food prices disply feures ssocied wih finncil chrcerisics such s voliliy clusering, long ils nd lepokurosis. 3

5 Tble Sisicl properies of d Prices AFP NFP KFP SFP HFP TFP IFP THFP OP Men Medin Mximum Minimum Sd. Dev Skewness Kurosis JB Prob LBQ() Obs. Reurns RAFP RNFP RKFP RSFP RHFP RTFP RIFP RTHFP ROP Men (%)..7E Medin Mximum Minimum Sd. Dev. (%) Skewness Kurosis JB Prob LBQ() Obs Figure Oil nd food price reurns for he period 99 o RAFP RNFP RKFP RSFP RHFP RTFP RIFP RTHFP ROIL Mehodology 3. Mehods for modelling men spillover effecs of oil prices on food prices Wih view o check men spillover effecs of World oil prices o food prices his sudy employs bivrie vecor uoregression (VAR) mehod of nlysis originlly developed by Sims (9). In he VAR pproch o nlysing inerrelionships mong vribles he wo min procedures re Grnger cusliy ess nd innovion ccouning such s impulse

6 response nlyses nd forecs error vrince decomposiions. Esimed VAR resuls re nlyzed wih he help of Grnger cusliy ess, vrince decomposiion nd impulse response nlysis. A ypicl VAR model hving p lgs cn be expressed succincly in mrix noion s follows: X A AX AX... ApX p () Where X is n x vecor of endogenous vribles, A is n x vecor of consns, Ai re n x n mrices of prmeers nd is zero men whie noise vecor of n x n vrincecovrince mrices. Grnger cusliy shows wheher lgged vlues of one vrible help o predic noher vrible. A vrible y is sid o Grngercuse x, if x cn be prediced wih greer ccurcy by using ps vlues of he y vrible rher hn no using such ps vlues, ll oher erms remining unchnged (Grnger, 99). Leing y nd x, be wo sionry vribles wih zero mens, simple cusl model cn be wrien in he following VAR form: y m m jx j bjy j j j () x m m cjy j djx j j j (3) Where nd re ssumed s uncorreled whie noise series, i.e. E ) ==E ), s. If j is sisiclly differen from zero nd b j is no sisiclly differen from zero hen we sy x Grngercuses y. Similrly, y is Grngercusing x if some c j is sisiclly differen from zero. If boh prmeers re sisiclly differen from zero here will hve bidirecionl cusliy or i is sid o hve feedbck relionship beween hem, nd if neiher of hem is sisiclly differen from zero we infer h x nd y re independen of ech oher. Assuming h inverbiliy condiions hold we cn consider he VMA (Vecor moving verge) represenion of he bivrie VAR model for he impulse response funcions. FP (i) (i) e OP e, i i (i) (i) (),i The prmeers in he jk (i) my be used o genere he numericl effecs of errors shocks

7 on he ime ph of endogenous vribles. In he proposed cse, here would be wo possible shocks o he sysem nd herefore, here will be four impulse response funcions (IRFs), which will be presened in grphicl form. In he bivrie seing he m sep forecs error for x series cn be expressed s x E x e e e ( ) () ()... (m ) () e () e... (m ) e m m xm xm x y m y m y () where x is column vecor of vribles. Tking he vrince x m) of his m sep forecs error gives: (m) ()... (m ) x x y ()... (m ) () The firs pr of he righ hnd side of he bove equion shows he vrince due o he shocks o x nd second pr mesures he effec o he y series. 3. Mehods for voliliy spillover effecs of oil prices on food prices In order o exmine he voliliy spillover effecs of inernionl oil prices on he food prices of seleced Asin nd Pcific counries we use univrie GARCH models. The esimion procedure involves severl sges. Firs of ll we esime differen GARCH models of oil price voliliy for differen ime periods. Models re esimed under he se of differen liner nd nonliner GARCH models nd he bes fi model is seleced bsed on he informion crieri nd forecsing cpbiliies. Over he full smple period he Exponenil GARCH (EGARCH) model developed by Nelson (99) fis d beer hn oher models. For he erly subsmple he Componen GARCH () model developed by Engle nd Lee (993) beer cpures voliliy chrcerisics hn oher models, nd over he les subsmple he Power ARCH (PARCH) model provided by Ding e l. (993) ouperforms oher models. In he second sge we obin condiionl vrinces (CV) ou of hese models o incorpore hem ino he vrince equions of food price reurns models. In he finl sge we esime severl ARMA (p,q)garch(,) models for ll food price series incorporing CVs in vrince equions in line wih Liu nd Pn (997) Lin nd Tmvkis () Engle e l. () Hmmoudeh e l.(3) nd chose bes models bsed on he informion crieri

8 nd forecsing biliy. In his sge simple GARCH models provided by Bollerslev (9), Threshold GARCH (TGARCH) developed by Glosen e l. (993), EGARCH, PARCH nd models re found o be good fi for differen food price series in differen ime periods. The models we esimed for he purpose of voliliy spillover effecs re discussed briefly in he following wo secions. 3.. Voliliy models for oil price As sed erlier for oil price voliliy, EGARCH, nd PARCH models re found o be good fi for hree differen ime periods. For full smple, oil price is esimed by ARMA (p,q)egarch (, ) model. The model cn be specified s follows: Men equion: ROIL ROIL e i i (7) ~ iid (, h ) Vrince equion: log h e e log h 3 h h () Where he prmeer cpures he mgniude of condiionl shocks on he condiionl vrince, mesures leverge effecs (if hen negive shocks give rise o higher voliliy hn posiive shocks nd vice vers), mesures persisency of ny shocks o voliliy nd should be less hn o reflec he sionriy of he reurns series. For he 99 o smple period he symmeric ARMA (p,q) (, ) model seems be suied o cpure he finncil chrcerisics. The model cn be wrien s follows: Men equion: ROIL ROIL e i i (9) ~ iid (, h ) Vrince equions: 7

9 q ( q h q ( e ) ( e q ) ( h h q ) ) () Where q is he permnen componen, ( e h ) serves s he driving force for he ime dependen movemen of he permnen componen nd ( h q ) represens he rnsiory componen of he condiionl vrince. The prmeer mesures symmery of leverge effecs nd he sum of prmeers 3 nd mesures he rnsiory shock persisence, while mesures he long run persisency derived from he shock o permnen componen given by. For he period Jnury o April PGARCH (, ) model is seleced s follows: ROIL ROIL i 3 ei ~ iid (, h ) ) ( h ) ( e e ) 3( h () where h is condiionl sndrd deviion nd is power erm which is deermined wihin he model, nd re ARCH nd GARCH prmeers, while prmeer cpures leverge effecs or symmery. Bsed on he vlue of he power erm his model cn ke he form of vrious ARCH/GARCH models. If i becomes TGARCH model nd when nd i becomes GARCHmodel 3.. Voliliy spillover models for food prices As sed erlier differen voliliy models qulify o be esimed for differen food price models cross ime periods. Condiionl vrince equions of he ARMA (p,q)garch models for GARCH, TGARCH, EGARCH, PARCH nd symmeric nd symmeric models esimed re presened below. ARMA orders re se by BoxJenkins mehodology (Box nd Jenkins, 97). Condiionl men equions re no shown becuse he ineres is on condiionl vrince equions only. The prmeers ( s ) ssocied wih roilh in ech cse mesures he voliliy spillover effecs from World oil prices o food prices of he seleced counries. Condiionl vrince equion of GARCH (, ) model:

10 h e h roilh 3 () Condiionl vrince equion of TGARCH (, ) model: h e e d h oilh 3 (3) Condiionl vrince equion of EGARCH (, ) model: log h e 3 log h h e h oilh () Condiionl vrince equion of PGARCH (, ) model: ( h ) ( e e ) ( h ) Oilh 3 () Condiionl vrince equions of symmeric model wih spillover prmeer in permnen equion: q ( q h q ( e ) ( e q ) ( h h q ) oilh ) 3 () Condiionl vrince equions of symmeric model wih spillover prmeer in rnsiory equion: q ( q ) ( e h ) h q ( e q ) ( h q ) oilh 3 (7) Condiionl vrince equions of symmeric (, ) wih spillover prmeer in permnen equion: q ( q h q ( e ) ( e q ) ( e h q ) oilh ) d 3 ( h q ) () Condiionl vrince equions of symmeric (, ) wih spillover prmeer in rnsiory equion: q ( q ) ( e h ) h q ( e q ) ( e q ) d ( h q ) oilh 3 (9) 9

11 In ech cse o void he possible violion of normliy models re esimed by using generlized error disribuion (GED). 3.3 Mehods for robusness nlysis In order o check robusness of he resuls o be obined for men nd voliliy spillover effecs from World oil prices o food prices of he concerned counries we use mulivrie GARCH (MGARCH) models, in priculr, bivrie BEEK (Bb, Engle, Kroner nd Krf) ype model proposed by Engle nd Kroner (99) is employed. To be specific, we develop model in line wih Higgs nd Worhingon () nd Lee (9). The model consiss of condiionl men nd vrince equions. The condiionl men reurns equion we develop for ech of he food price model cn be wrien s: R AR () I N(, H) where R is n n x vecor of dily food/oil price reurns ime for ech mrke, is n n x vecor of consns, is n x vecor of innovion for ech mrke ime wih is corresponding n x n condiionl vrince nd covrince mrix, H nd he elemens of ij of he mrix A re he mesures of he degree of men reurn spillover effecs cross food nd oil mrkes, specificlly, he esimes of he elemens of he mrix A offer mesures for own lgged nd cross men spillovers. The vrince equion in he BEKK represenion for MGARCH model cn be wrien s: H C C G H G () where c i,j re elemens of n x n symmeric C mrix of consns; b i,j, he elemens of n x n symmeric B mrix, mesure he degree of lgged nd cross innovion from mrke i o

12 mrke j nd he elemens g i,j of he n x n symmeric G mrix signifies he persisence of condiionl voliliy beween mrke i nd j. The equion in () cn be wrien in is simple form for he bivrie BEKK model s: b b,,, b b H CC b b,, b b, g g g g H g g g g () In equion () b mesures he voliliy spillover from oil mrke o food mrke nd b represens he voliliy spillover from food mrke o oil mrke, g indices voliliy persisence effecs from oil mrke o food mrke nd g shows he voliliy persisence effecs from food mrke o oil mrke. For possible violion of normliy we esime models using Bollerslev nd Wooldridge (99) robus sndrd errors.. Empiricl Resuls. Men spillover effecs from oil prices o food prices In order o exmine he effecs of shocks o oil prices on food prices men level, bivrie VAR models piring oil price o ech counry s food prices re esimed for ech of he series covered in he sudy. Augmened Dickey Fuller (ADF) ess resuls in Tble show h ll price series re nonsionry levels while hey re sionry in firs differences, hence inegred of order (Dickey nd Fuller, 979). Tble Resuls Uni roo es Level Firs diff. Level Firs diff. Level Firs diff. OP AFP NFP KFP SFP HFP TFP IFP THFP Noes: The vlues re sisics nd, b, c indice %, % nd % significnce level respecively However, ccording o he Johnsen (9) coinegrion esing procedure, in no insnce is he food price series coinegred wih world oil prices ny level of significnce. These resuls re no produced here for breviy purpose bu re vilble from he uhor. Alhough

13 oil nd food price indices do no show ny long run liner combinion (consisen wih Zhng e l.()p), he Personin correlion coefficiens mongs he series re significn, being greer hn.. bou or greer hn. in ech cse for full smple period (see Tble 3). For he erly nd recen subsmples he correlion coefficiens differ from full smple resuls. Bsed on he posiive correlions in ll cses excep wo excepions in he erly subsmple, i cn be concluded h hough oil nd food prices do no exhibi ny long run relionship here migh hve shor run relionship beween hem. The significn lgging nd leding relionship long wih nonsionry properies sugges using bivrie VAR regression models wih firs differenced series. Wih view o esiming he VAR models, opiml lg lenghs re seleced bsed on he lowes vlues of informion crieri e.g. LR, FPE, AIC, SC nd HQ suppored by les 3 crieri vlues which re used for Grnger cusliy ess. For ech model we selec he lg lengh indiced by hree of he five crieri employed. As cn be seen in Tble for mos models opiml lg lengh is wih he excepion of New Zelnd nd Thi models. For hese wo models opiml lg lenghs re 3 nd respecively. Tble 3 Correlion beween oil nd food prices 99 AFP NFP KFP SFP HFP TFP IFP THFP OP OP OP OP Tble Opiml lg lengh Models LR FPE AIC SC HQ AFP OP 3 NFP OP KFP OP 3 SFP OP 3 HFP OP 3 3 TFP OP 3 IFP OP THFP OP 3 Bsed on he opiml lg lengh he models re esimed ccordingly in he unresriced VAR form nd we do no repor he resuls of VAR models in he pper becuse ssocied ool kis explin resuls more hn VAR coefficiens. The resuls of Grnger cusliy ess, vrince decomposiions nd impulse response funcions re illusred in he following secions... Grnger cusliy es resuls Tble repors Grnger cusliy es resuls. The second, hird nd fourh column liss Chisqure sisics wih pvlues in prenheses for he period of 99, 99 nd

14 respecively. I is cler from esimed chisqure sisics h fuure food prices cn be prediced wih lgged vlues of hemselves nd inernionl oil prices. Inernionl oil prices nd food prices of ll counries show unidirecionl cusl relionship from oil o food prices excep Ausrli cross ll hree smple/subsmples. In he cse of Ausrli nd Indi bidirecionl cusl relionship cn be observed for full smple period. Alhough i seems here is bidirecionl cusl relionship beween oil nd Indin food prices he Chi squre sisics from oil o food is sisiclly significn % level of significnce while from food o oil i is sisiclly significn only % level of significnce. For he wo subsmples no evidence of bidirecionl cusl relionship ppers for Indi, or for Ausrli for he subsmple of 99. These resuls imply wek cusliy evidence from food prices o oil price. Bsed on he nlysis bove, i cn be inferred h here is significn evidence of unidirecionl men spillover from oil prices o food prices in he Asipcific region. Tble Resuls of Grnger cusliy es for food nd oil prices Null hypoheses OP does no Grnger cuse AFP ) ) ) AFP does no Grnger cuse OP ) (.9) ) OP does no Grnger cuse NFP b.79 ) (.) ) NFP does no Grnger cuse OP (.37) (.) (.9) OP does no Grnger cuse KFP ) (.3) ) KFP does no Grnger cuse OP (.3) ) (.3) OP does no Grnger cuse SFP b 7. ) (.) ) SFP does no Grnger cuse OP b (.) (.73) (.) OP does no Grnger cuse HFP.73. b 9. ) (.7) ) HFP does no Grnger cuse OP (.) (.) (.9) OP does no Grnger cuse TFP ) 7) ) TFP does no Grnger cuse OP (.) (.33) (.3) OP does no Grnger cuse IFP ) ) ) IFP does no Grnger cuse OP.79 c (.3) (.37) (.9) OP does no Grnger cuse THFP.33.3 c.9 ) (.79) ) THFP does no Grnger cuse OP (.) (.) (.) Noes: The vlues re chisqure sisics nd vlues in prenheses re pvlues nd, b, c indice %, % nd % significnce level respecively 3

15 .. Anlysis of forecs error vrince decomposiion The genered vrince decomposiion funcions for, nd 3 dy horizon re displyed in Tble over he full nd wo subsmple periods. Over he full smple period ll he price series receive considerble innovion effecs from oil price chnges. Shocks o oil prices conribue. percen o he vriion of Ausrlin food price chnges for dy horizon while he effecs decrese grdully over he horizons. The conribuion of oil price shocks o New Zelnd food price chnge is. percen nd he effecs for Kore, Singpore, Hong Kong, Tiwn, Indi nd Thilnd re.,.,., 7.3, 7. nd 3.9 percen respecively over dy period nd he effecs persis over 3 dy horizon. Food imporer counries show more voliliy in prices hn food exporer counries. Esimed vlues for he erly subsmple period shows negligible vriion in food prices of ech counry due o he shocks in oil price chnges while les period d shows relively high responsiveness of food price chnges hn he erly subsmple. This implies h oil nd food mrkes re more inerdependen in he recen periods hn ny oher imes in he ps. Alhough he mgniudes of he sources of vriion due o he oil price shocks re low here is significn vriion in food price in he recen ime nd he rend remins he sme. Tble Vrince decomposiion (%) of food prices for horizon, nd 3 dys Periods 99(OP) 99(OP) (OP) AUSFP NZFP KORFP SINFP HKFP TWNFP INFP THFP Overll nlysis of vrince decomposiion shows h oil prices conribue o he sources of food price voliliy bu he mgniude differs for food imporing nd food exporing counries. In food imporing counries of Kore, Singpore, Hong Kong nd Tiwn he conribuion of oil prices o sources of voliliy is higher hn in food exporing counries of

16 Ausrli nd New Zelnd. Moreover, he mgniudes differ cross ime periods nd in recen ime period food nd oil mrkes found o be more inerdependen. This is becuse food producion is geing more echnology inensive, depending more on oil. The resuls of vrince decomposiion suppor he resuls of Grnger cusliy ess h oil prices help predicion of food prices...3 Impulse response nlysis The impulse response funcions of food prices o oil price shocks re exhibied in Figures over hree ime periods for horizon of 3 dys. Figure depics he responses over he full smple period. The impulse response of he Ausrlin food price chnges o inernionl oil shows h oil price shock posiively ffecs Ausrlin food prices in dy nd persiss for long ime hough he mgniude diminishes over ime. The mgniude is round 3 percen. I cn lso be seen in Figure 3 h in hiry dys he effec of shock does no dispper. New Zelnd food prices lso posiively respond o he oil price shock nd he effecs of shocks sy sble for 3 dys nd longer wih mgniude of more hn percen. The Koren, Singpore, Hong Kong nd Tiwn food prices lso posiively respond o he oil price shocks nd he effecs of shocks increses over ime lhough he size of he effecs re differen. Consisen wih New Zelnd he effecs of shocks o he Indin nd Thi food prices re posiive nd keep sble over he period. Similr perns cn be seen in he ne food exporer counries excep Ausrli nd his is lso pplicble mong ne imporer counries. Figure Impulse response funcions of food prices o Cholesky one sndrd deviion o oil price shock over he period 99. Response of AUSFP o OP Response of NZFP o OP

17 Response of KORFP o OP Response of SINFP o OP 3 3 Response of HKFP o OP Response of TWNFP o OP Response of INFP o OP Response of THFP o OP 3 3 Figure 3 displys responsiveness of food prices o inernionl oil prices over he period of 99. Similr o vrince decomposiion resuls posiive shorlived responses of food prices o oil price shocks cn be viewed. Exceping New Zelnd, Kore nd Thilnd in ll oher cses he effecs of shocks die ou quickly. In he Ausrlin nd Indin food mrke prices respond posiively round percen dy while i dies ou rpidly in week. In Singpore mrke he effecs remin bou weeks nd in Hong Kong i remins bou four weeks. In he cse of New Zelnd nd Thilnd he effecs increses grdully nd decreses fer long period while i remins sble for 3 dys nd hen dies ou in Koren cse. Figure 3 Impulse response funcions of food prices o Cholesky one sndrd deviion o oil price shock over he period 99

18 Response of AUSFP o OP Response of NZFP o OP Response of KORFP o OP Response of SINFP o OP 3 3 Response of HKFP o OP Response of TWNFP o OP Response of INFP o OP Response of THFP o OP 3 3 Figure exhibis impulse response funcions of food prices o he World oil price shock over he period. Similr o he bove wo periods, food prices posiively respond o he oil prices. In Ausrli food prices increse immediely wih he oil price shock bou percen nd hen die ou grdully wih more hn 3 dys. Alhough he mgniude for New Zelnd food mrke is bou. percen he effecs of shocks persiss over ime nd die ou even fer longer period. The Koren nd Singpore mrkes show similr perns wih he oil price shocks. Responding immediely wih he shock food prices rise bou percen nd hen hey ke noher jump period which lif prices up o bou percen. The effecs remin persisen over he 3 dys nd hen die ou slowly. For he Hong Kong 7

19 food mrke he oil prices conribue o percen increse in he price dy while he effecs of shocks dispper grdully fer 3 dys. Tiwn food mrke lso recs posiively bou percen he beginning nd hen cool down bi dy nd hen kes noher pick up which remins sble for long ime. A similr pern cn be observed in he Indin food mrke hough he mgniude is bou percen. Thi food prices shows relively lower posiive responses o he oil price shocks hn ll oher mrkes. The mgniude of increse of he food price is less hn percen. Figure Impulse response funcions of food prices o Cholesky one sndrd deviion o oil price shock over he period Response of AUSFP o OP Response of NZFP o OP Response of KORFP o OP Response of SINFP o OP 3 3 Response of HKFP o OP Response of TWNFP o OP Response of INFP o OP Response of THFP o OP 3 3

20 In summry, impulse response nlysis suppors Grnger cusliy resuls. Significn posiive conribuion of oil prices o he sources of food price chnges cn be observed cross differen ime periods. Consisen wih he vrince decomposiion nlysis impulse response funcions lso reffirms h food mrke nd oil mrke re more inerdependen in he recen period hn he ps. The mgniude of he responses due o food price shocks re higher in he recen period hn he erly subsmple nd lso effecs of shocks re persisen hn previous period.. Voliliy spillover effecs from oil o food price reurns Tble 7 presens esimion oupu of differen GARCH models for spillover effecs over he full smple period 99. In ech reurns series, models provide beer fis o he d hn he oher models eiher in symmeric or symmeric form. For Ausrli, Singpore, Hong Kong nd Indi he symmeric fis beer while for he oher four counries he symmeric model beer cpures he voliliy chrcerisics of food price reurns. For symmeric models is he mesure for voliliy spillover effecs nd for symmeric models mesures i. Boh nd mesure rnsiory or shor run voliliy spillover effecs. Spillover prmeers were iniilly incorpored in permnen componens, bu none of he relevn prmeers were found sisiclly significn nd hence vrince spillover effecs re resriced o he rnsiory componens. Almos ll prmeers including consns, ARCH, GARCH nd leverge effecs (where pplicble) re significn mosly % or % level of significnce in ech model. In ll cses oil price posis posiive voliliy spillover effecs o food price reurns. For % increse of oil price reurns Tiwn (.39), Ausrli (.3), Kore (.9), Thilnd (.) nd Hong Kong (.7) food prices show more voliliy spillover effecs while Indi (.), Singpore (.) nd New Zelnd (.) food prices show relively low voliliy spillover effecs during he period 99. Dignosic es sisics (LBQ nd ARCHLM) do no indice model specificion errors. No or lile evidence of furher uocorrelion cn be observed. GED prmeers re ll less hn nd significn % level of significnce implying he jusificion of using he generlized error disribuion insed of norml. Tble 7 Esimed voliliy model over he period 99 Prmeer s RAUSFP.9E (.E) RNZFP. (.E) RKORFP.7 ) RSINFP.3 c ) RHKFP.37 (.E) RTWNFP.37 (9.E) RINFP.7 ) RTHFP. c 93) 9

21 ) ) ) ) 79) 9) 9) 737) ) 37) (.3) 7) 3) (.) 799) (.) (.) (.7) (.9) 779) (.) (.3) (.9) (.3).7 b.37.7 b b.7.37 c (.3) (.) (.77) (.) (.97) (.7) (.9) (.99) c.793 b (.9) (.9) (.39) (.) (.793) (.397) (.9) (.799).97 b.9 b.3997 b.9 (.3) (.37) (.3) (.99) GED.3 (.33).73 (.).9 (.39). (.7).977 (.793).3 (.3).3 (.333).7777 (.7) LB(Q). c.3. b.9 c b 3.9 LB(Q) ARCH LM.9 (.).393 (.). (.3).9 (.). (.).77 (.).99 (.9).9 (.) Noes: The vlues re coefficiens of vrince equion nd vlues in prenheses re sndrd errors nd, b, c indices %, % nd % significnce level respecively Tble repors vrince coefficiens of esimed GARCH models over he period 99. GARCH, TGARCH nd models re found o be good fi for food price reurns over his smple period. In he cse of Ausrli, Kore nd Indi GARCH models fi well while for New Zelnd nd Tiwn he TGARCH beer cpures voliliy. For he remining counries (Singpore, Hong Kong nd Thilnd), models ouperform oher models, nd excep Hong Kong, he symmeric model ouperforms he symmeric version. For he GARCH se of models mesures voliliy spillover effecs; for TGARCH models nd symmeric models while for symmeric mesure voliliy spillover effecs. Almos ll prmeers re significn 99% nd 9% confidence levels. Prmeers mesuring voliliy spillover effecs re ll significn excep RSINFP nd RINF. Significn prmeers re ll posiive showing posiive spillover from oil price o price reurns. Over his smple period, % increse in voliliy of oil price poses rise of voliliy.% for Hong Kong,.93% for Thilnd,.9% for New Zelnd,.9 for Tiwn nd.7% for Kore while Ausrlin food price reurns show lowes voliliy spillover effecs,.9%. Similr o he full smple period, here is no or lile evidence of misspecificion of models long wih he suppor of using GED disribuion. Tble Esimed voliliy model over he period 99 Prmeer s RAUSFP GARCH.3E b (.3E).79 (.93).9 (.39).973 b (.3) RNZFP TGARCH.E (.E).3 (.).7 b (.9).7 (.99).9 c (.79) RKORFP GARCH.7E b (.7E).37 (.93).33 (.9).773 b (.77) RSINFP. b 3) ).77 (.797).97 (.79).37 c (.7) RHKFP. (.E).93 (.3).3 c (.7).977 (.97).73 (.73) RTWNFP TGARCH.E b (.E).339 c (.).973 (.77).9 (.77).9 b (.93) RINFP GARCH.E (.E).933 (.93).797 (.9).3 (.79) RTHFP. 77).99 (.97).977 b (.3).79 (.7999).3 (.9)

22 .7.7 b.39 (.37) (.337) (.) b (.7) (.7) GED.39 (.7).39 (.7).373 (.7).97 (.333).9 (.37). (.7).3 (.3).9 (.9) LB(Q).7 b c LB(Q) ARCHLM.393 (.3). (.37). (.3).3E (.3).337 (.3). (.3).9 (.39). (.37) Noes: The vlues re coefficiens of vrince equion nd vlues in prenheses re sndrd errors nd, b, c indices %, % nd % significnce level respecively Tble 9 displys vrince coefficiens of esimed GARCH models for he les smple period. Like for he full smple period, in his cse lso models domine oher models in erms of cpuring voliliy chrcerisics of food price voliliy reurns. GARCH model fis he d exremely well for RKORFP series wheres TGARCH beer cpures his effec for RNZFP nd RSINFP. For res of he series he models perform bes. Among CAGRCH models symmeric versions re bes fiing for RHKFP nd RTHFP, while in ll oher cses symmeric models were found o be he bes performers ccording o he informion crieri. Almos ll prmeers hve he righ signs nd re sisiclly significn for ech model. For GARCH model nd for TGARCH model is he mesure for voliliy spillover effecs. For models mesures permnen voliliy effecs nd (for symmeric) nd (for symmeric) mesure rnsiory voliliy spillover effecs from oil price reurns. Prmeers mesuring voliliy spillover effecs re ll found o be posiive nd sisiclly significn. There is evidence of permnen voliliy spillover effecs from oil o food price reurns for he Ausrli nd Tiwn mrke. Hong Kong (.%) nd Thi (.9%) food price reurns show highes voliliy spillover effecs for % voliliy in oil price while ll oher food prices show posiive voliliy spillover effecs rnges from. o.3% nd Ausrli shows he lowes voliliy mong ll counries. As in he cse of he oher wo smple periods, here is no evidence of remining seril correlion long wih he jusificion of using GED disribuion for esimion purpose. Tble 9 Esimed voliliy model over he period Prmeer s RAUSFP.EE (3.7E) ).93 3).7 7) RNZFP TGARCH.E (3.E). (.).3 b (.37).77 (.) RKORFP GARCH.E (.E). (.9). (.7).393 b (.797) RSINFP TGARCH.E c (.33E).73 (.9). c (.39).793 (.) RHKFP.7 (3.7E).93 ). 97).33 (.3) RTWNFP. b 3).99 (.7).7 (.337).39 c (.) RINFP.79 39) ).3 (.).3 (.379) RTHFP.9 (.E) ). (.).3 (.737).7.39 b.93 c b

23 (.93) (.333) (.) (.) (.37) (.93) (.797) c.3 (.) (.9) (.) (.37) (.3).7.9 b (.33) (.7) GED.3 (.).777 (.39).3 (.).37 (.79). (.77).7 (.3).977 (.3997).3 (.37) LB(Q) b c LB(Q) ARCHLM.3 (.9).9 (.).7 (.39).97 (.3). (.).3 (.7).93 (.7). (.9) (.3) Noes: The vlues re coefficiens of vrince equion nd vlues in prenheses re sndrd errors nd, b, c indices %, % nd % significnce level respecively To sum up, bsed on he bove nlysis i cn be inferred h he oil nd food mrkes re inerdependen in erms of voliliy spillover effecs. There is significn posiive voliliy spillover effec from oil price reurns o food price reurns irrespecive of he mrke sus, wheher i is ne food exporer or ne food imporer, nd cross differen ime periods. For long horizon periods he mgniudes of voliliy spillover effecs re higher hn for shorer ime periods nd he mos recen d shows even lower mgniudes. The Ausrlin mrke shows high voliliy spillover effecs for he full smple period while for remoe ps nd recen ps smple periods he voliliy spillover effecs re lower, hough permnen voliliy spillover hs been observed wih low mgniude for he recen subsmple. Koren nd Tiwn food mrkes follow he pern of Ausrli. The New Zelnd mrke shows relively lower voliliy effecs for he longer smple while bi higher voliliy effecs cn be seen for remoe ps period nd very low significn effecs re observed for recen subsmple. Hong Kong nd Thi mrkes re similr o he New Zelnd mrke. However, Singpore nd Indin mrkes show similr perns in erms of voliliy spillover from he oil mrke. For he full smple period hey boh show low mgniudes of spillover effecs, for he 99 period no spillovers nd for he recen subsmple gin low mgniude cn be observed. Ineresingly, i cn be noed h in recen periods ll food mrkes re more efficien or compeiive hn for erlier periods becuse he mgniudes of voliliy spillover is lower during his period. Since wih few excepions no evidence of permnen voliliy spillover effecs cn be found i cn be documened h voliliy spillover from oil price o food price is shor run consisen wih men spillover effecs..3 Robusness nlysis In order o guge he robusness of he previous resuls regrding men nd voliliy spillover effecs, we lso esimed mulivrie GARCH models in bivre BEEK formulion. The resuls re shown in Tble. Tble repors he resuls for men

24 reurn spillover effecs cross he hree ime periods considered. The upper pnel of he Tble shows he coefficiens for he enire period 99. The elemen mesures he men spillover effec from oil price reurns o food price reurns nd mesures men reurn spillover from food prices o oil prices for every model. I cn be seen h ll of he men spillover prmeers from oil price o food price re sisiclly significn % level excep for he Indin food price prmeer which is significn % level. On he oher hnd, i cn lso be noiced h none of he prmeers mesuring men spillover from food mrke o oil mrke re sisiclly significn, excep for Koren. These resuls imply h here is unidirecionl men spillover effec from oil price o food prices nd no vice vers. The middle pnel of he Tble displys he condiionl men coefficien mrix over he erly subsmple period 99. Here i cn lso be viewed h here is srong evidence of unidirecionl men spillover effecs from oil mrke o food mrkes excep for Kore nd Indi. No single evidence of men spillover from food mrke o oil mrke cn be documened over his subsmple. The lower pnel of he Tble repors resuls for he les subsmple period. The spillover resuls re very much consisen wih he previous wo cses. All he elemens mesuring men spillover from oil price o food prices re sisiclly significn les 9 percen level of confidence nd here is no significn evidence of men spillover from food mrkes o oil mrke. The significn prmeers in ll cses wih negligible excepions show h % increse in oil price reurns enhnces food price men reurns more hn. percen cross ime periods nd he rnsmission re is higher for ne food exporer counries. Over he full smple period he Hong Kong mrke receives he highes men spillover (.3) from % increse of oil prices followed by Tiwn (.9), Singpore (.7) nd Kore (.3). Over he erly subsmple Tiwn food price reurns receive higher men spillover form oil prices followed by Hong Kong. During he recen period gin Hong Kong mrke receives higher men spillovers from oil prices followed by Singpore, Tiwn nd Kore. In his period he mgniudes of spillover effecs re greer hn.9 mening more inerdependence beween food nd oil mrke. These resuls once gin ffirm he findings of he VAR pproch where i ws lso documened h here is unidirecionl men spillover effecs from oil prices o food prices nd no vice vers. 3

25 Tble Esimed reurn coefficiens for MGARCH condiionl men equions AFP(i= ). c ) OP(i= ). ) NFP(i= ) 3.97E ) OP(i= ). ) KFP(i= ). ) OP(i= ). ) SFP(i= ). c ) 99 OP(i= ). ) HFP(i= ).7 b 3) OP(i= ). ) TFP(i= ). ) OP(i= ). ) IFP(i= ). b ) OP(i= ). ) TFP(i= ). ) OP(i= ). ) i i.3 c (.9). (.9). (. ). (. 7).7 (.). (.3). ). (. 7). b (.9).3 (.7). 7).37 (. 7). (.).7 (.3).9 ).3 (. ). ).3 (.9). ). (. ).3 (.).9 (.). ). (. 7). (.9 ).33 b (. ). (. ). (. 7).9 (. ). ). ). (. 7) 99 i i. ).7 (.7). (.). b ).7 (. 3). (. 7). ). b (.9). b (.). b ).7 (. ).7 (. ).3 ). (.7).33 (.9). b ). ). (. ). ). (.).9 b (.). b ). 9). ) 7.3E ). (.3). (.). ). 7). (. ) 3.E ). (.).9 (.). ). (. ).9 (. ). 3 ). (. ). (.3 ). b ). (. ). (. ). ). (.9).7 c (.). ).7 9). (. ) i i. b ). b (.). (.7). ).3 (. ).9 (. 3). ).3 (.9). (.). ). (. 7) (. 3). ). (.7).93 (.3). 7 ). (. ).7 (. 3). ). (.3).9 (.). ). (. ). (. ).9 b ). b (.).3 (.). ). (. 3). (. ). ). (.).9 (.3). 7 ). (. ). (. ). b ).3 (. ). b (.9 ). ). (. ). (. 3). ).9 (.3).7 (.) Noes: The vlues re coefficiens of condiionl men equion nd vlues in prenheses re sndrd errors nd, b, c indices %, % nd % significnce level respecively. 7 ). (. ).3 (. 3) Tble displys coefficiens mesuring voliliy spillover effecs from World oil o food prices cross he hree smple periods. The complee vrince covrince mrices re no repored in order o preserve spce bu cn be supplied upon reques. All prmeers mesuring voliliy spillover effecs from oil prices o food prices for ll counries food price reurns re sisiclly significn % level of significnce for ll hree periods hough he mgniudes differ cross ime. As for he previous nlysis he les d exhibis higher voliliy spillover hn he erly nd whole smple periods, impliying h food nd oil mrkes re more inerdependen in recen ime periods hn in he ps. For Ausrli he voliliy spillovers from oil prices re in he rnge of.3 o. percen due o percen voliliy in oil mrke cross ll hree ime periods. In he cse of New Zelnd he effecs vries beween.7 o. percen nd for Kore he effecs re in beween.3 o. percen. In Singpore he effecs rnge from.3 o. percen while for Hong Kong i is in beween. o. percen. For Tiwn he mgniudes lies beween.3 o.9 percen while for Indi i is jus in he rnge of.9 o.. The Thi mrke shows he lowes

26 effec for he erly period (.) nd highes effecs for he recen period (.7). In erms of voliliy spillover effecs from oil o food mrke, no cler disincion cn be mde beween ne food exporer nd ne food imporer counries. New Zelnd is found o hve high voliliy responsives o oil prices while Ausrli is found o be he lowes responden. Tble Esimed vrince coefficiens indicing voliliy spillover effecs in BEEKype bivrie GARCH model 99 AFP NFP KFP SFP HFP TFP IFP TFP OP.3 ).77 (.). ). ) ).3 ). ). ) OP. ).7 (.).3 ).3 ). ).3 ).7 9). 9) OP. ). (.). (.).7 ). 7).9 (.). 7).7 (.) Noes: The vlues re voliliy spillover coefficiens of vrince equions nd vlues in prenheses re sndrd errors nd, b, c indices %, % nd % significnce level respecively The men nd voliliy spillover effecs nlyzed in his secion wihin he bivrie BEEKype GARCH models re consisen wih he nlysis of secion. nd. wihin he frmework of VAR nd univrie GARCH models wih few excepions. Alhough in univrie nlysis we found h he mgniudes of mesuring voliliy spillover effecs from oil o food prices for he recen subsmple is lower hn erlier subsmple, we prefer o ccep mulivrie resuls over univrie one where we found h spillover effecs re higher in recen period consisen wih men spillover effecs. The reson could be more inerdependencies beween griculurl secor nd energy secors in he recen period.. Conclusions This sudy emped o exmine he men nd voliliy spillover effecs of World oil prices on food prices in he conex of Ausrli, New Zelnd, Souh Kore, Singpore, Hong Kong, Tiwn, Indi nd Thilnd over he period 99. The mjor conclusions we drw re s follows. There re significn posiive men nd voliliy spillover effecs from World oil prices o food prices of he seleced Asi Pcific counries nd no vice vers, hough he mgniudes of effecs differ from counry o counry for differen ime horizons. Higher men nd voliliy spillover effecs re reveled for he recen ps hn he remoe ps implying h he oil nd food mrkes re more inerdependen in recen ime hn in he ps. Priculrly fer, food prices re found o be more ffeced by World oil prices

27 nd he effecs of shocks lso persis for longer period while before he effecs re shorlived. Lile evidence of long run posiive relionships in erms of boh men nd voliliy spillover effecs beween World oil prices nd food prices seleced Asi Pcific counries cn be documened which is consisen wih Zhng e l.(). However, here is subsnil evidence of shor run relionships beween hem hough Ausrlin nd Tiwn food prices exhibi permnen voliliy spillover from oil o food price during recen ime period. Similr wih men spillover effecs i ws found h low evidence of permnen voliliy spillover effecs cn be repored in mos of he cses s he voliliy spillover effecs re rnsiory. The recen ime period shows higher voliliy spillovers hn erly period. In erms of men spillover effecs ne food imporer counries food prices show higher effecs hn ne food exporer counries, however, no disincion cn be mde beween exporers nd imporers in erms of voliliy spillover effecs. The resuls of his sudy re robus becuse consisen resuls re found hrough cross check by boh univrie nd mulivrie ime series nlysis. Empiricl findings of his sudy sugges h he world crude oil prices should be considered for he purpose of policy nlysis nd forecsing of food prices. References Abdel, H.A., Arshd, F.M.,. The impc of peroleum prices on vegeble oils prices: evidence from coinegrion ess. Pper presened he Inernionl Borneo Business Conference on Globl chnges, Mlysi, December,. Abo, P.C., Hur, C., Tyner, W.E., 9. Wh's driving food prices? Frm foundion issue repor. Alghlih, M.,. The inercion beween food prices nd oil prices. Energy Economics In Press, Correced Proof. Bffes, J., 7. Oil spills on oher commodiies. Resources Policy 3, 3. Bollerslev, T., 9. Generlized uoregressive condiionl heeroscedsiciy. Journl of Economerics 3, Bollerslev, T., Wooldridge, J.M., 99. Qusimximum Likelihood Esimion nd Inference in Dynmic Models wih TimeVrying Covrinces. Economeric Reviews, 37. Box, G.E.P., Jenkins, G.M., 97. Time Series Anlysis:forecsing nd conrol. HoldenDy Sn Frnsisco, CA. Chen, S.T., Kuo, H.I., Chen, C.C.,. Modeling he relionship beween he oil price nd globl food prices. Applied Energy 7, 7. Dickey, D.A., Fuller, W.A., 979. Disribuion of he esimes for uoregressive ime series wih uni roo. Journl of he Americn Sisicl Associion 7, 73. Ding, Z., Grnger, C.W.J., Engle, R.F., 993. A long memory propery of sock mrke reurns nd new model. Journl of Empiricl Finnce, 3. Du, X., Yu, C.L., Hyes, D.J.,. Speculion nd voliliy spillover in he crude oil nd griculurl commodiy mrkes: A Byesin nlysis. Energy Economics In Press, Acceped Mnuscrip. Engle, R.F., Io, T., Lin, W.L., Srno, L., Tylor, M.P.,. Meeor Showers or He Wves? Heeroskedsic Inrdily Voliliy in he Foreign Exchnge Mrke. New developmens in

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