Modeling the dynamics of oil and agricultural commodity price nexus in linear and nonlinear frameworks: A case of emerging economy

Abstract

AbstractThis paper aims at modeling the dynamics of oil and agricultural commodity price nexus in linear and nonlinear frameworks in the Indian context. Monthly prices of agricultural commodities from 1982:M04 to 2021:M05 for 37 agricultural commodities under 12 clusters have been considered in the study. For the symmetric and asymmetric impacts of oil prices on agricultural commodity prices, advanced econometric approaches, autoregressive distributed lag and nonlinear autoregressive distributed lag, have been applied, respectively. The results reveal that in the case of aggregate analysis, oil prices have an asymmetric impact on 10 clusters of agricultural commodities in the long run, while disaggregate analysis suggests that oil prices have a long‐run positive elasticity with 29 of 37 agricultural commodity prices. Further, the asymmetric causality approach indicates that positive and negative shocks in oil prices Granger cause the prices of 34 agricultural commodities in the short run. The study has significant implications for policymakers, individual and institutional investors, wholesale producers, and primary producers (farmers).