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What Drives Commodity Prices More: Oil Demand or Supply Shocks?

Author

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  • Mutuc, Maria Erlinda M.
  • Pan, Suwen
  • Hudson, Darren

Abstract

This paper shows that the response of agricultural commodity prices in the U.S. related to fluctuations in oil prices in the international market may differ greatly depending on whether the increase is driven by demand or supply shocks in the crude oil market. In the long-run, around 2-7 percent of the variability in grains, oilseeds, and cotton prices can be attributed to shocks to aggregate demand for industrial commodities while none can be traced to oil supply shocks. This paper improves on the lack of economic structure in VAR models employed so far, and on the issue of short datasets, contributes to the nascent empirical evidence, and identifies the transmission of different types of oil price shocks to movements in agricultural prices in a SVAR framework using monthly data from 1976 to 2008.

Suggested Citation

  • Mutuc, Maria Erlinda M. & Pan, Suwen & Hudson, Darren, 2010. "What Drives Commodity Prices More: Oil Demand or Supply Shocks?," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61070, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea10:61070
    DOI: 10.22004/ag.econ.61070
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    Cited by:

    1. Ebenezer, Appiah Collins & Jatoe, John Baptist D. & Mensa-Bonsu, Akwasi, 2018. "Food Price Sensitivity To Changes In Petroleum Price And Exchange Rate In Ghana: A Cointegration Analysis," 2018 Conference (2nd), August 8-11, Kumasi, Ghana 277791, Ghana Association of Agricultural Economists.

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