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Abstract

This paper investigates the linkages between commodity price bubbles and macroeconomic factors, with an application to agricultural commodity markets in China from 2006 to 2014. Price bubbles are identified using a newly-developed recursive right-tailed unit root test. A Zero-inflated Poisson Model is used to analyze the factors contributing to bubbles. Results show that a) there were speculative bubbles in most of the Chinese agricultural commodities during the sample period, though their presences are rather infrequent; b) economic growth, money supply and inflation have positive effects on bubble occurrences, while interest rate has a negative effect; c) among all macroeconomic factors considered, economic growth and money supply have the greatest effects on bubble occurrences. Our findings shed new light on the nature and formation of bubble behavior in the Chinese agricultural commodity markets.

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