El Ni~no southern oscillation and its effects on world vegetable oil prices: assessing asymmetries using smooth transition models

In this research, we examine the effects of El Ni~no southern oscillation (ENSO) on market dynamics of major vegetable oil prices. We adopt a smooth transition vector error correction modelling framework to analyse the impacts of ENSO events on the vegetable oil prices and, more interestingly, to investigate the asymmetric nature of the ENSO dynamics and price responses to ENSO shocks. The results confirm selfexciting type nonlinearities in the ENSO dynamics, and presence of the so-called transactions cost band in the system of vegetable oil prices. These nonlinearities yield the history-specific asymmetries in the vegetable oil price dynamics, wherein effects of ENSO shocks on the ENSO dynamics and the vegetable oil prices vary considerably between different ENSO regimes. In general, positive deviations, El Ni~no events, result in the vegetable oil price increase, while negative deviations, La Ni~na events, result in decrease in the prices. We illustrate these effects using generalised impulseresponse functions and the derived asymmetry measures.

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Journal Article
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Australian Journal of Agricultural and Resource Economics, Volume 57, Issue 2
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 Record created 2017-04-01, last modified 2018-01-23

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