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Impact of oil demand and supply shocks on food-grain prices: a Markov-switching approach

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  • Md. Abdur Rahman Forhad
  • Md Rafayet Alam

Abstract

This study examines the impact of structural oil demand and supply shocks on the prices of four food-grains: corn, rice, soybean and wheat. We first derive two oil demand shocks-one is due to the change in the global economic condition and the other is oil-market-specific-and an oil supply shock that reflects the change in global oil production. The structural shocks are then used in the linear, and nonlinear Markov-switching models to examine their effects on the four food-grain prices. The results show that an unanticipated oil supply shock does not affect price of any of the four food-grains significantly. An increase in the demand for oil, which is not induced by the change in global economic condition, increases only the corn price in the less volatile corn market. An improvement of global economic condition impacts wheat and corn prices in high volatility regimes. However, oil shocks that are older than one month usually do not affect the food-grain prices.

Suggested Citation

  • Md. Abdur Rahman Forhad & Md Rafayet Alam, 2022. "Impact of oil demand and supply shocks on food-grain prices: a Markov-switching approach," Applied Economics, Taylor & Francis Journals, vol. 54(10), pages 1199-1211, February.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:10:p:1199-1211
    DOI: 10.1080/00036846.2021.2009113
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    Cited by:

    1. He, Zhifang & Sun, Hao, 2024. "The time-varying and asymmetric impacts of oil price shocks on geopolitical risk," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 942-957.
    2. Puneet Vatsa & Dragan Miljkovic & Jungho Baek, 2023. "Linkages between natural gas, fertiliser and cereal prices: A note," Journal of Agricultural Economics, Wiley Blackwell, vol. 74(3), pages 935-940, September.

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