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Abstract
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.