Volatility Linkages between Energy and Food Prices: Case of Selected Asian Countries | Asian Development Bank

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Volatility Linkages between Energy and Food Prices: Case of Selected Asian Countries

Publication | March 2018
Volatility Linkages between Energy and Food Prices: Case of Selected Asian Countries

Oil price is the major component explaining fluctuations in food prices.

We examine the linkages between energy price and food prices over the period 2000–2016 by using a Panel-VAR model in the case of 8 Asian economies: Bangladesh, the People’s Republic of China, Indonesia, India, Japan, Sri Lanka, Thailand, and Viet Nam. Our results confirm that energy price (oil price) has a significant impact on food prices. According to the results of impulse response functions, agricultural food prices respond positively to any shock from oil prices. The findings from variance decomposition reveal that shares of oil prices in agricultural food price volatilities are the largest. In the second period 4.81%, and in the 20th period 62.49%, of food price variance is explained by oil price movements. We offer new policy insight. Since We also found that the impact of biofuel prices on food prices is statistically significant but explains less than 2% of the food price variance. However, by increasing the demand for biofuel, especially in advanced countries, there should be more concern about the global increase in agricultural commodities prices and endangering food security, especially in vulnerable economies.

WORKING PAPER NO: 829