Abstract
This article contributes to the existing empirical literature by examining the spillovers across price inflation and agricultural commodity prices for the case of Nigeria. To achieve this objective, we employ the Diebold and Yilmaz (Int J Forecast 28(1):57–66, 2012) spillover index. Subsequently, we examine the directional spillover, total spillover, and net spillover indexes. Further analysis to capture cyclical and secular movements was addressed with 40 months of subsamples via the rolling window analysis. Our empirical results, based on the monthly frequency data from January 2006 to July 2016 show that the total spillover effect was about 75%. This suggests a high interconnectedness of the selected agricultural commodity prices and inflation. Further empirical findings shows that inflation, sorghum, soybeans, and wheat were net receivers while cocoa, barley, groundnut, maize, rice were net givers. We find a negative net spillover for price inflation, implying a net positive spillover from commodity prices to price inflation. Based on these outcomes, several inherent policy implications for the government administrators, farmers, investors and all stakeholders abound. For instance, the need for government officials to insulate the agricultural market from externalities for optimum prices stability is pertinent.
Highlights
IntroductionAgricultural commodity prices in recent times have been experiencing an upward trend in record time (see Loening et al 2009), since the 2006–2008 global food crisis
Agricultural commodity prices in recent times have been experiencing an upward trend in record time, since the 2006–2008 global food crisis
Diebold and Yilmaz (2009, 2012, 2014) expressed that the full sample spillover measures cannot explicitly reflect important secular and cyclical movement in spillovers. On these premise of the aforementioned bottlenecks, we offer a rolling window framework that allows for time-varying spillover indices, using a 40-month subsample in order to circumvent the earlier shortcomings of the spillover index, it is pertinent the rolling window analysis help to holistically capture some episodes and events over the interest period under consideration
Summary
Agricultural commodity prices in recent times have been experiencing an upward trend in record time (see Loening et al 2009), since the 2006–2008 global food crisis. The spillover effect of the global food price surge in 2006–2008 has left most economies with the high inflation rate, large trade deficits and general poor macroeconomic environment especially in the developing economies. The explanation to this phenomenon is worthy of investigation so as to provide academicians, stakeholders and policymakers ample background as well as open opportunities for investors (Balcilar et al 2014). Abbott et al (2009) posited that the key drivers of hike in agricultural commodity prices are found in the huge synergy that exists among macroeconomic indicators These indicators include oil prices, Balcilar and Bekun Economic Structures (2020) 9:2 interest rate, exchange rate, unemployment, as well as the gap between agricultural productivity and increasing demand for food. It is seen as the paramount driving force for high agricultural prices (see FAO 2008; Mitchell 2008 and OECD 2008)
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