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How does trade policy uncertainty affect agriculture commodity prices?

Author

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  • Sun, Ting-Ting
  • Su, Chi-Wei
  • Mirza, Nawazish
  • Umar, Muhammad

Abstract

The present paper explores the impact of trade policy uncertainty (TPU) on agricultural commodity prices (ACP) by employing bootstrap full- and subsample rolling-window Granger causality tests. We find that TPU has both positive and negative effects on ACP, suggesting that TPU may change the supply of and demand for agricultural commodities, leading to fluctuations in ACP. These results support the hypotheses derived from the general equilibrium model, which highlights that TPU can significantly affect ACP. In turn, we find a positive impact of ACP on TPU, indicating that the agricultural commodity market reflects trade conditions in advance. In the context of Sino-U.S. trade frictions and the COVID-19 pandemic, the interaction between TPU and ACP can provide insights for governments to prevent large fluctuations in agricultural commodity markets and stabilize the national economy.

Suggested Citation

  • Sun, Ting-Ting & Su, Chi-Wei & Mirza, Nawazish & Umar, Muhammad, 2021. "How does trade policy uncertainty affect agriculture commodity prices?," Pacific-Basin Finance Journal, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:pacfin:v:66:y:2021:i:c:s0927538x21000214
    DOI: 10.1016/j.pacfin.2021.101514
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