Journal of
Development and Agricultural Economics

  • Abbreviation: J. Dev. Agric. Econ.
  • Language: English
  • ISSN: 2006-9774
  • DOI: 10.5897/JDAE
  • Start Year: 2009
  • Published Articles: 527

Full Length Research Paper

Empirical investigation of the dynamic linkages between crude oil and maize prices: Dating the structural breaks

Marimpi, D. Maria
  • Marimpi, D. Maria
  • Aristotle University of Thessaloniki, Department of Economics, Greece.
  • Google Scholar


  •  Received: 27 December 2013
  •  Accepted: 07 March 2014
  •  Published: 30 April 2014

Abstract

The main purpose of this paper is to analyze the long- and short-run effects of crude oil prices on maize prices, taking into consideration the possible structural breaks in the relationship between them. Time-series analysis was used to estimate the dynamic linkages between variables under examination, while the Bai and Perron procedure was applied to endogenously identify the turning points. Data employed were collected from the World Bank’s database Global Economic Monitors (GEM) for commodities, covering the time period from January 1960 to December 2012. The structural break was dated in early 2005, when the ethanol mandate in the US Energy Policy Act became effective. Empirical results from cointegration analysis support the hypothesis that crude oil prices consistently affect maize prices and this relationship has strengthen after the biofuel mandate in 2005 was issued in the US. Furthermore, the estimation of the ECM suggests that any deviation from equilibrium is corrected with nearly 48% over the following year. The results may call for serious policy implications. Directives and legal framework supporting the production and use of bioethanol should take into consideration the possible effect on food prices and especially grains, usually used for biofuel production.

 

Key words: Crude oil, maize, cointegration, Bai and Perron, structural breaks.