Unveiling the asymmetric response of global food prices to the energy prices shocks and economic policy uncertainty

Abstract

The sharp upturn of energy and food prices have become serious challenges almost all over the globe. Despite the voluminous literature on the relationship between energy prices and food prices, the existing research, however, mostly relied on linear frameworks and aggregate measures of energy prices. To improve the current know-how about the interaction between energy and food prices, this study aims to apply nonlinear and time frequency techniques (NARDL and Wavelet Coherence Transform), using four measures as proxies for energy prices (Brent, West Texas, and Dubai oil prices as well as natural gas). The data consists of 288 monthly observations extending from 1997M01 to 2020M12. The NARDL results confirm the asymmetrical relationship between energy prices and food prices. In particular, in the long run the positive shocks of Brent oil price and natural gas are found to have greater and long-lasting effect on food prices. The West Texas and Dubai oil prices also disclose similar effects but in the shorter runs. The Wavelet analysis uncovers that, in the medium and longer runs especially between eight- and sixteen-months, energy prices and policy uncertainty lead food prices with positive signs. Accordingly, various policy suggestions have been provided.