IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/91517.html
   My bibliography  Save this paper

Determinants of food price inflation: evidence from Malaysia based on linear and nonlinear ARDL

Author

Listed:
  • Hasan, Amiratul Nadiah
  • Masih, Mansur

Abstract

Given the adverse impact of growing inflation on food prices and the importance of policymakers to keep the food price inflation stable, this study aims to investigate the determinants of food price inflation. This study contributes to the existing literature by employing Nonlinear ARDL (NARDL) technique to identify whether the relationship between the focused variables is linear and symmetric or not. This study finds that the variables are cointegrated in the long run. The error correction model VECM and the Variance Decompositions analysis found that the exchange rate is the most exogenous variable and the government has no control over it since it is determined by the external factors such as, supply and demand for Malaysia ringgit. Further, NARDL found that the relationship between the food price and exchange rate to be symmetric in the long run but asymmetric in the short run. Since the exchange rate is the most exogenous variable in this study and the fact that Malaysia in on flexible exchange regime, it makes it hard for the policy makers to control the fluctuations of the Malaysian exchange rate to control food price. Hence the adjustment and control of food price should be made through the reduction of the food import in order to minimise the exchange rate pass through effect on the food price inflation.

Suggested Citation

  • Hasan, Amiratul Nadiah & Masih, Mansur, 2018. "Determinants of food price inflation: evidence from Malaysia based on linear and nonlinear ARDL," MPRA Paper 91517, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:91517
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/91517/1/MPRA_paper_91517.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Baffes, John, 2007. "Oil spills on other commodities," Resources Policy, Elsevier, vol. 32(3), pages 126-134, September.
    4. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    5. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    6. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    7. Rizgar Abdlkarim Abdlaziz & Khalid Abdul Rahim & Peter Adamu, 2016. "Oil and Food Prices Co-integration Nexus for Indonesia: A Non-linear Autoregressive Distributed Lag Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 6(1), pages 82-87.
    8. Robin C. Sickles & William C. Horrace (ed.), 2014. "Festschrift in Honor of Peter Schmidt," Springer Books, Springer, edition 127, number 978-1-4899-8008-3, December.
    9. Nazlioglu, Saban & Soytas, Ugur, 2011. "World oil prices and agricultural commodity prices: Evidence from an emerging market," Energy Economics, Elsevier, vol. 33(3), pages 488-496, May.
    10. Harri, Ardian & Nalley, Lanier & Hudson, Darren, 2009. "The Relationship between Oil, Exchange Rates, and Commodity Prices," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 41(2), pages 501-510, August.
    11. Nazlioglu, Saban, 2011. "World oil and agricultural commodity prices: Evidence from nonlinear causality," Energy Policy, Elsevier, vol. 39(5), pages 2935-2943, May.
    12. Nazlioglu, Saban & Soytas, Ugur, 2012. "Oil price, agricultural commodity prices, and the dollar: A panel cointegration and causality analysis," Energy Economics, Elsevier, vol. 34(4), pages 1098-1104.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    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.
    2. Yoon, Seong-Min, 2022. "On the interdependence between biofuel, fossil fuel and agricultural food prices: Evidence from quantile tests," Renewable Energy, Elsevier, vol. 199(C), pages 536-545.
    3. Filip, Ondrej & Janda, Karel & Kristoufek, Ladislav & Zilberman, David, 2019. "Food versus fuel: An updated and expanded evidence," Energy Economics, Elsevier, vol. 82(C), pages 152-166.
    4. Sergio Adriani David & Claudio M. C. Inácio & José A. Tenreiro Machado, 2019. "Ethanol Prices and Agricultural Commodities: An Investigation of Their Relationship," Mathematics, MDPI, vol. 7(9), pages 1-25, August.
    5. Mourad Zmami & Ousama Ben-Salha, 2019. "Does Oil Price Drive World Food Prices? Evidence from Linear and Nonlinear ARDL Modeling," Economies, MDPI, vol. 7(1), pages 1-18, February.
    6. Sarwar, Muhammad Nadeem & Hussain, Hamid & Maqbool, Muhammad Bilal, 2020. "Pass through effects of oil price on food and non-food prices in Pakistan: A nonlinear ARDL approach," Resources Policy, Elsevier, vol. 69(C).
    7. Wang, Yudong & Wu, Chongfeng & Yang, Li, 2014. "Oil price shocks and agricultural commodity prices," Energy Economics, Elsevier, vol. 44(C), pages 22-35.
    8. Adämmer, Philipp & Bohl, Martin T., 2015. "Speculative bubbles in agricultural prices," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 67-76.
    9. Natanelov, Valeri & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2013. "Crude oil–corn–ethanol – nexus: A contextual approach," Energy Policy, Elsevier, vol. 63(C), pages 504-513.
    10. Sari, Ramazan & Soytas, Ugur & Hacihasanoglu, Erk, 2011. "Do global risk perceptions influence world oil prices?," Energy Economics, Elsevier, vol. 33(3), pages 515-524, May.
    11. Hanif, Waqas & Areola Hernandez, Jose & Shahzad, Syed Jawad Hussain & Yoon, Seong-Min, 2021. "Tail dependence risk and spillovers between oil and food prices," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 195-209.
    12. Hamzah, Nurrawaida Husna & Masih, Mansur, 2018. "Revisiting effectiveness of interest rate as a tool to control inflation: evidence from Malaysia based on ARDL and NARDL," MPRA Paper 87576, University Library of Munich, Germany.
    13. Agus Widarjono & Indah Susantun & Sarastri M. Ruchba & Ari Rudatin, 2020. "Oil and Food Prices for a Net Oil Importing-country: How Are Related in Indonesia?," International Journal of Energy Economics and Policy, Econjournals, vol. 10(5), pages 255-263.
    14. Karakotsios, Achillefs & Katrakilidis, Constantinos & Kroupis, Nikolaos, 2021. "The dynamic linkages between food prices and oil prices. Does asymmetry matter?," The Journal of Economic Asymmetries, Elsevier, vol. 23(C).
    15. Cheng, Sheng & Cao, Yan, 2019. "On the relation between global food and crude oil prices: An empirical investigation in a nonlinear framework," Energy Economics, Elsevier, vol. 81(C), pages 422-432.
    16. Tule, Moses K. & Salisu, Afees A. & Chiemeke, Charles C., 2019. "Can agricultural commodity prices predict Nigeria's inflation?," Journal of Commodity Markets, Elsevier, vol. 16(C).
    17. Rosa, Franco & Vasciaveo, Michela & Weaver, Robert D., 2014. "Agricultural and oil commodities: price transmission and market integration between US and Italy," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 3(2), pages 1-25, August.
    18. Aynur Pala, 2013. "Structural Breaks, Cointegration, and Causality by VECM Analysis of Crude Oil and Food Price," International Journal of Energy Economics and Policy, Econjournals, vol. 3(3), pages 238-246.
    19. Mensi, Walid & Hammoudeh, Shawkat & Nguyen, Duc Khuong & Yoon, Seong-Min, 2014. "Dynamic spillovers among major energy and cereal commodity prices," Energy Economics, Elsevier, vol. 43(C), pages 225-243.
    20. Luqman, Muhammad & Ahmad, Najid & Bakhsh, Khuda, 2019. "Nuclear energy, renewable energy and economic growth in Pakistan: Evidence from non-linear autoregressive distributed lag model," Renewable Energy, Elsevier, vol. 139(C), pages 1299-1309.

    More about this item

    Keywords

    food price inflation; exchange rate; ARDL; Nonlinear ARDL; Malaysia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:91517. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.