Long run relationship between energy and agricultural commodities testing in Indian context using cointegration and causality approach

Abstract

It is being surmised in certain quarters that the price volatility in the market for crude oil is spilling over to the non-energy commodity markets. The aim of the present research is to measure and document the impact of crude oil market on the agricultural commodity markets in India by investigating their long run relationship. This study uses the Johansen s cointegration analysis and the Granger causality technique to explore the existence of a relationship between the prices of crude oil and agricultural commodities over the long-term horizon. The results and implications of the current work can be of special utility to the different stakeholders in the markets for agricultural commodities like participants of the commodity exchanges, traders, commission agents and producers. The previous studies in this area have not individually investigated the long-term price relationship between the various agricultural commodities and crude oil in India.