Contagion Effect Among Crude Oil and Food Prices in India

Abstract

This paper examines the contagion effect among crude oil and wheat, soybean and maize spot prices in India using the daily prices data for 2010-2013. Using correlation, we find comovement among spot as well as among futures prices of commodities. The causality is present among spot prices of commodities. There is unidirectional contagion effect running from crude oil to soybean spot and, from maize spot and soybean spot to wheat spot. In the recent period, we find the movement of contagion effect from crude oil prices to food prices. The VAR model shows that commodities spot prices are influenced by its past prices and futures prices and also by the spot and futures prices of other commodities. The contagion effect among the crude oil and food prices as well as within the food market has been witnessed among wheat, soybean and maize spot prices even after controlling for futures prices in the Indian commodities market.