Open Access Open Access  Restricted Access Subscription Access

Nonlinear Relationship of Crude Oil Price and Primary Commodity Prices

Z. A. Kamaruzzama, M. T. Ismail

Abstract


In this paper, we examine the effect of crude oil price to the primary commodity prices namely lamb (other foods), olive oil (fats and oils), rubber (raw materials), tea (beverages), wheat (cereals) and zinc (metals) from January 1980 until November 2008. We employed two regimes multivariate Markov switching vector autoregressive (MS-VAR) model with regime shifts in the mean and variance. Using the LR test, the linearity in the commodity series can be rejected which implies there is regime switching structure. The commodity price series are well fitted by the MS-VAR (1) model. The MS-VAR (1) model also manages to capture the behaviour of the crude oil price and the primary commodity prices. Regime 1 capture the period where the commodity prices decrease and regime 2 capture the period where the commodity prices increase. It shows that when crude oil price increase, the primary commodity prices follows to increase. When crude oil price decrease, the primary commodity prices also decrease. We can conclude that crude oil price does effects the prices of primary commodity and there is nonlinear relationship between crude oil price and primary commodity prices.

Keywords


Multivariate Markov switching vector autoregressive (MS-VAR) model, crude oil price, primary commodity prices.

Full Text:

PDF


Disclaimer/Regarding indexing issue:

We have provided the online access of all issues and papers to the indexing agencies (as given on journal web site). It’s depend on indexing agencies when, how and what manner they can index or not. Hence, we like to inform that on the basis of earlier indexing, we can’t predict the today or future indexing policy of third party (i.e. indexing agencies) as they have right to discontinue any journal at any time without prior information to the journal. So, please neither sends any question nor expects any answer from us on the behalf of third party i.e. indexing agencies.Hence, we will not issue any certificate or letter for indexing issue. Our role is just to provide the online access to them. So we do properly this and one can visit indexing agencies website to get the authentic information. Also: DOI is paid service which provided by a third party. We never mentioned that we go for this for our any journal. However, journal have no objection if author go directly for this paid DOI service.