Examining the Co-movement between Energy and Agricultural Commodity Prices in India

Abstract

This paper examined the transmission mechanism of an increase in energy prices on the price of selected agricultural commodities in India using monthly wholesale price indices during April 1994 to March 2014. In order to assess the effect of deregulation of some petroleum products which was implemented since April, 2002, the sample data was divided into two periods (April 1994 - March 2004 and April 2004 - March 2014), besides analyzing for full period so that before and after period analysis will provide clearer picture of possible link between the two prices. To supplement the finding of Johansen co-integration analysis, we assessed the nature and extent of causal relationship between the variables. The results indicated evidence of parallel movement between prices of energy and all selected agricultural commodities after deregulation, which means higher transmission between crude oil and commodities prices. The results obtained are expected to help in understanding of transmission mechanism for policy makers to optimize and stabilize the markets.