Abstract
The dollar is the leading international currency, and it is used widely in the majority of international financial transactions. The various food products that comprise agricultural commodities, as also crude oil, have been using the dollar exchange rate for international trade. Over the past several years, the changes in the dollar exchange rate have shown more volatility in addition to a depreciation trend, which has had an influence on the prices of those commodities. We analyzed the relationship between the dollar exchange rates and the prices of two commodities, palm oil and crude oil, by using the GARCH(1,1) model to examine the volatility of the exchange rates and the future prices 1-Pos. of the prices of both the commodities. The vine copula model is used to analyze the dependence structure between their marginal distributions. The data analyses were based on the daily observations from June 2007 to March 2013. The empirical results of GARCH(1,1) show that the exchange rates, palm oil prices, and crude oil prices have a long-run persistence in volatility. The C-vine copula model reveals that there exists a weak negative dependence for each pair-copula, that is, Exchange rate-Palm oil (E,P) and Exchange rate-Crude oil (E,C) in tree 1. Also, a conditional pair-copula of Palm oil-Crude oil given Exchange rate (P,C|E) in tree 2 offers a weak positive dependence. Moreover, the findings of this study provide evidence that the exchange rate (E) is an important variable that governs the interactions in the dependence structure between palm oil price (P) and crude oil price (C).
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Asian Development Bank. Global food price inflation and developing Asia. Asian Development Bank (2011), http://www.adb.org/publications/global-food-price-inflation-and-developing-asia (accessed May 23, 2013)
Serra, T., Zilberman, D.: Biofuel-related price transmission literature: A review. Energy Economics 37, 141–151 (2013)
Abbott, P.C., et al.: What’s Driving Food Prices? Farm Foundation Issue Report (July 2008)
Harri, A., et al.: The relationship between oil, exchange rates, and commodity prices. Journal of Agricultural and Applied Economics 41, 501–510 (2009)
Harri, A., Hudson, D.: Mean and variance dynamics between agricultural commodity prices and crude oil prices. Paper presented at the Economics of Alternative Energy Sources and Globalization, The Road Ahead Meeting, Orlando, FL, November 15-17 (2009)
Kwon, D., Koo, W.W.: Price transmission channels of energy and exchange rate on food sector: a disaggregated approach based on stage of process. Selected Paper prepared for presentation at the Agricultural & Applied Economics Association 2009 AAEA & ACCI Joint Annual Meeting, Milwaukee, Wisconsin, July 26-29 (2009)
Akram, Q.F.: Commodity Prices, Interest Rates and the Dollar. Energy Economics 31, 838–851 (2009)
Cooke, B., Robles, M.: Recent Food Prices Movements. A Time Series Analysis. International Food Policy Research Institute (IFPRI) Discussion Paper No. 00942. IFPRI, Washington DC (2009)
Gilbert, C.L.: How to understand high food prices. Journal of Agricultural Economics 61(2), 398–425 (2010)
Balcombe, K.: The nature and determinants of volatility in agricultural prices: an empirical study. In: Prakash, A. (ed.) Safeguarding Food Security in Volatile Global Markets, pp. 85–106. FAO, Rome (2011)
Nazlioglu, S., Soytas, U.: Oil Price, agricultural commodity prices, and the dollar: a panel cointegration and causality analysis. Energy Economics 34, 1098–1104 (2012)
Anzuini, et al.: The impact of monetary policy shocks on commodity prices. Working paper No. 851, Bank of Italy (2012)
ASEAN Secretariat. Regional and Country Reports of the ASEAN Assessment on the Social Impact of the Global Financial Crisis. The ASEAN Secretariat (2010), http://www.asean.org/archive/publications/ARCR/ASEANRegional&CountryReport.pdf (accessed May 20, 2013)
FAO. Declaration of the world summit on food security. World Summit on Food Security, Rome, November 16-18 (2009), ftp://ftp.fao.org/docrep/fao/Meeting/018/k6050e.pdf (accessed May 20, 2013)
United Nations. World Energy Assessment: Overview 2004 Update. United Nations Development Programme (2004), http://www.undp.org/content/dam/aplaws/publication/en/
ASEAN Secretariat. ASEAN Community in a Global Community of Nations.Co-Chairs’ statement of the 4th ASEAN-UN summit Bali, Indonesia (November 19, 2011), http://www.mofa.go.jp/region/asia-paci/eas/pdfs/declaration_1111_2.pdf (accessed May 20, 2013)
Abbott, P.C., et al.: What’s Driving Food Prices in 2011? Farm Foundation Issue Report (July 2011)
Sheil, D., et al.: The impacts and opportunities of oil palm in Southeast Asia: What do we know and what do we need to know? Occasional paper no. 51. CIFOR, Bogor, Indonesia (2009)
Speed, P.A.: ASEAN. The 45 Year Evolution of a Regional Institution. POLINARES working paper n. 61, University of Westminster (2012), http://www.polinares.eu/docs/d4-1/polinares_wp4_chapter11.pdf (accessed May 27, 2003)
Reboredo, J.C.: How do crude oil prices co-move? A copula approach. Energy Economics 33, 948–955 (2011)
Sriboonchitta, S., et al.: Modeling volatility and dependency of agricultural price and production indices of Thailand: Static versus time-varying copulas. International Journal of Approximate Reasoning 54(6), 793–808 (2013)
Bollerslev, T.: Generalized Autoregressive Conditional Heteroskedasticity. Journal of Econometrics 31, 307–327 (1986)
Brechmann, E.C., Schepsmeier, U.: Modeling Dependence with C- and D-Vine Copulas: The R Package CDVine. Journal of Statistical Software 52(3), 1–27 (2013), http://www.jstatsoft.org/v52/i03/ (accessed February 20, 2013)
Wuertz, D., Chalabi, Y.: Rmetrics-Autoregressive Conditional Heteroskedastic Modelling (2013), http://cran.r-project.org/web/packages/fGarch/index.html (accessed May 10, 2013)
Sklar, A.: Fonctions de répartition á n dimensions etleursmarges. Publications de l’Institut de Statistique de L’Université de Paris 8, 229–231 (1959)
Nelson, R.B.: An Introduction to Copulas, 2nd edn. Springer, New York (2006)
Trivedi, P.K., Zimmer, D.M.: Copula Modeling: An Introduction for Practitioners. Foundations and Trends in Econometrics 1(1), 1–111 (2005)
Fisher, M.: Tailoring copula-based multivariate generalized hyperbolic secant distributions to financial return data: An empirical investigation. Discussion papers, University of Erlangen-Nüremberg, Germany (2003), http://www.statistik.wiso.uni-erlangen.de/forschung/d0047.pdf (accessed January 25, 2013)
Joe, H.: Families of m-Variate Distributions with Given Margins and m(m1)/2 Bivariate Dependence Parameters. In: Rüschendorf, L., Schweizer, B., Taylor, M.D. (eds.) Distributions with Fixed Marginals and Related Topics, vol. 28, pp. 120–141 (1996)
Bedford, T., Cooke, R.M.: Probability Density Decomposition for Conditionally Dependent Random Variables Modeled by Vines. Annals of Mathematics and Artificial Intelligence 32, 245–268 (2001)
Bedford, T., Cooke, R.M.: Vines- A New Graphical Model for Dependent Random Variables. Annals of Statistics 30, 1031–1068 (2002)
Aas, K., et al.: Pair-copula constructions of multiple dependence. Insurance: Mathematics and Economics 44, 182–198 (2009)
Koyama, K.: A Though on Crude Oil Pricing in Asia. The institute of energy economics, Japan (2011), https://eneken.ieej.or.jp/data/3711.pdf (accessed May 27, 2013)
Patton, A.J.: Modelling Asymmetric Exchange Rate Dependence. International Economic Review 47(2), 527–556 (2006)
Manthos, V.: Dynamic Copula Toolbox 3.0 (2010), http://www.mathworks.com/matlabcentral/fileexchange/29303-dynamic-copula-toolbox-3-0 (accessed December 15, 2012)
Lim, S., Teong, L.K.: Recent trends, opportunities and challenges of biodiesel in Malaysia: An overview. Renewable and Sustainable Energy Reviews 14, 938–954 (2010)
Gasparatos, A., et al.: Sustainability impacts of first-generation biofuels. Animal Frontiers 3(2), 1–15 (2013), doi:10.2527/af.2013-0011
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2014 Springer International Publishing Switzerland
About this paper
Cite this paper
Kiatmanaroch, T., Sriboonchitta, S. (2014). Relationship between Exchange Rates, Palm Oil Prices, and Crude Oil Prices: A Vine Copula Based GARCH Approach. In: Huynh, VN., Kreinovich, V., Sriboonchitta, S. (eds) Modeling Dependence in Econometrics. Advances in Intelligent Systems and Computing, vol 251. Springer, Cham. https://doi.org/10.1007/978-3-319-03395-2_25
Download citation
DOI: https://doi.org/10.1007/978-3-319-03395-2_25
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-03394-5
Online ISBN: 978-3-319-03395-2
eBook Packages: EngineeringEngineering (R0)