Cereal and Fuel Price Interactions: Econometric Evidence from India
Journal Title: Journal of Business Thought - Year 2016, Vol 6, Issue
Abstract
What'sfuellingthefoodprices?Whileseveralreasonsabound,theroleoffuelpricesinfuellingfoodpricescannotbenegated.Evidencesuggeststhatthereisanincreasingco-movementbetweenworldoilpricesandagriculturalcommodityprices,withrisingdemandforbio-fuelsalsoimpactingtherelationship.Thishasreinstatedtheinterestindeterminingthepricetransmissionfromworldcrudeoilpricestothatofagriculturalcommodities.Inthiscontext,thepresentstudyanalyzesthefuel-foodpricerelationshipintheIndiancontext.Inadditiontofoodandfuelprices,bothdomesticandinternational,twomacro-economicvariables,viz.,inflationandrealeffectiveexchangerateshavebeenanalyzed.UsingmonthlytimeseriesdataovertheperiodApril1994toDecember2014,thelong -andshortterminteractionsbetweenthevariableshavebeenestimatedusingToda-YamamotocausalityandJohansencointegrationtests.Additionally,usingVARestimates,theimpulseresponsefunctionshavebeengeneratedandanalyzed.Aspecifichighlightofthepresentpaperistheanalysisbasedonforecasterrorvariancedecomposition. Analysisbasedonimpulseresponsefunctionsindicatesthatinternationalcerealsprice,andfuelprices-bothdomesticandinternational,ingeneral,haveapositiveimpactondomesticcerealprices.Basedonvariancedecompositionofdomesticcerealprices,thefindingsindicatethatshockstofuelprices- both domesticand international, havea negligible impacton domestic foodprices over tenmonths period.InviewofIndia'smandateonbio-fuelpolicy,as also therecentderegulationoffuelprices,theassociatedimpactonfoodpricescannotbeoverlooked.Thepaperconcludeswithabroadpolicyperspective.
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