Spillover dynamics across price inflation and selected agricultural commodity prices

Abstract

Abstract This article contributes to the existing empirical literature by examining the spillovers across price inflation and agricultural commodity prices for the case of Nigeria. To achieve this objective, we employ the Diebold and Yilmaz (Int J Forecast 28(1):57–66, 2012) spillover index. Subsequently, we examine the directional spillover, total spillover, and net spillover indexes. Further analysis to capture cyclical and secular movements was addressed with 40 months of subsamples via the rolling window analysis. Our empirical results, based on the monthly frequency data from January 2006 to July 2016 show that the total spillover effect was about 75%. This suggests a high interconnectedness of the selected agricultural commodity prices and inflation. Further empirical findings shows that inflation, sorghum, soybeans, and wheat were net receivers while cocoa, barley, groundnut, maize, rice were net givers. We find a negative net spillover for price inflation, implying a net positive spillover from commodity prices to price inflation. Based on these outcomes, several inherent policy implications for the government administrators, farmers, investors and all stakeholders abound. For instance, the need for government officials to insulate the agricultural market from externalities for optimum prices stability is pertinent.

Keywords

• Agricultural commodity prices
• Inflation
• VAR model
• Forecast error variance
• Price spillover
• Nigeria