Oil-food price dynamics in an oil-dependent emerging economy

Abstract

Purpose This paper aims to examine the transmission from oil price to local food price returns in Nigeria from January 1995 to May 2019. Design/methodology/approach To circumvent erratic behaviours and account for possibilities of noises at the edge of the wavelet signals, the paper combines wavelet and Markov-switching techniques to determine the significance and magnitude of oil–food price dynamics across different time scales. Findings It is shown that oil to food price pass-through changed across frequencies. Notably, results reveal a swift pass-through which signals the dominance of the direct effect of oil price shocks on food prices with evidence of weak spillover in the short term. The medium- and long-term horizons witness the dominance of the indirect effect of oil price shocks with much sluggish transmission to food prices; the highest significant pass-through of about 4% are also observed when the oil price is denominated in the naira–USD exchange rate. Originality/value The study improves understanding of the relationship between oil price shocks and domestic food price returns. It shapes policy prescription on appropriate inflation targeting strategies of monetary authorities.

Heterogeneous Dependence of Oil-Food Price Dynamics in Africa's Net Oil-Exporting Countries

“…Additionally, numerous studies have found possible asymmetries involving oil and food prices by exploring NARDL, Markov switching, and VAR methodologies. Ibrahim (2015), Meyer, Sanusi, and Hassan (2018), and Adeosun et al (2021) all indicate mixed results regarding food prices' relation to oil prices.…”

“…Using a panel vector autoregressive (PVAR) model, Taghizadeh-Hesary et al (2018) examine the relationship between fuel and food prices rigorously and conclude that oil prices have a considerable impact on food rates in designated Asian economies. Recently, Adeosun et al (2021) employed wavelet and Markov-switching techniques to investigate the oil-food price dynamics in Nigeria. Thus, to eliminate contradicting behaviour and adjust for disturbances near the edge of the wavelet impulses, the author used monthly data from 1995: M1 to 2019: M5.…”

“…Thus, an unexpected surge in the actual cost of oil was mirrored by deliberate increases in agricultural output prices in the United States (Baumeister & Kilian, 2013). Also, Adeosun et al (2021) establish a significant oil-food relationship that changes across frequencies. The authors also contend that oil price behaviour may have exhibited structural breaks, suggesting reasons for gauging the distributional effect of oil price shocks.…”

“…Another viewpoint focuses on the transmission mechanism between crude oil and food prices, which operates continuously in diverse phases. Also, recent studies like Ibrahim (2015), Adeosun, Olayeni, andAyodele (2021) employ NARDL methodology to gauge the asymmetries effect of changes in oil prices on explanatory variables. These studies provide conflicting outcomes.…”

Oil price and exchange rate nexus in Algeria: evidence from nonlinear asymmetric and frequency domain approach

“…Concerning the case of Algeria, numerous studies have investigated the relationship between oil price and exchange rates; however, they have considered only the linear relationship between these variables (Sorsa, 1999; Koranchelian, 2005; Benhabib et al , 2014), while it is well documented in the empirical literature that the path of oil price is asymmetric and volatile (Adeosun et al , 2020). The purpose of this paper is to examine whether changes in oil prices explain the pattern of Algeria real effective exchange rate (REER) using nonlinear nonlinear autoregressive distributed lag (NARDL), frequency domain causality approach and wavelet coherence analysis.…”