Impact Analysis of the External Shocks on the Prices of Malaysian Crude Palm Oil: Evidence from a Structural Vector Autoregressive Model
Palm oil prices, similar to other edible oils and commodity prices, are highly sensitive to external shocks which have become particularly prominent in the wake of COVID-19 pandemic. The non-stationary nature of the palm oil price complicates the modelling and forecasting of its behaviour. This stud...
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| Format: | Article |
| Language: | English |
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MDPI AG
2022-12-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/10/23/4599 |
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| author | Mohd Syafiq Sabri Norlin Khalid Abdul Hafizh Mohd Azam Tamat Sarmidi |
| author_facet | Mohd Syafiq Sabri Norlin Khalid Abdul Hafizh Mohd Azam Tamat Sarmidi |
| author_sort | Mohd Syafiq Sabri |
| collection | DOAJ |
| description | Palm oil prices, similar to other edible oils and commodity prices, are highly sensitive to external shocks which have become particularly prominent in the wake of COVID-19 pandemic. The non-stationary nature of the palm oil price complicates the modelling and forecasting of its behaviour. This study investigates the impact of the external and internal shocks on Malaysian palm oil (MPO) prices using the SVAR methodology. The SVAR model utilised in this study is unique in that it employs the news-based indices called the Infectious Disease Volatility Tracker (IDVT) and the Economic Policy Uncertainty Index (EPUI) as parts of the time series. News-based indices can potentially uncover essential proxies for economic and policy conditions, as well as portend the investment decision-making and in turn the commodity prices. The rationale behind this choice is to capture the impact from perception and news-based indices on the Malaysian palm oil prices. The empirical result from impulse–response function (IRF) shows that the shock in IDVT has a significant positive impact on Malaysian palm oil prices suggesting the MPO is exposed to the external factor. In addition, amongst the external variables tested, IDVT shows the longest lasting and highest positive impact on Malaysian palm oil prices. These results are in accordance with forecast error variance decomposition which indicates that IDVT shock can explain a huge portion of MPO prices especially over a longer period. The model specified in this study is also sufficiently stable and robust. This study contributes to the literature the significance of news-based indices and their capability in influencing public perception on the current macroeconomic condition, hence influencing the decision-making process of economic agents. |
| first_indexed | 2024-03-09T17:40:59Z |
| format | Article |
| id | doaj.art-b66a62f629cc41d9921cce38e31cef7f |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-09T17:40:59Z |
| publishDate | 2022-12-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-b66a62f629cc41d9921cce38e31cef7f2023-11-24T11:36:16ZengMDPI AGMathematics2227-73902022-12-011023459910.3390/math10234599Impact Analysis of the External Shocks on the Prices of Malaysian Crude Palm Oil: Evidence from a Structural Vector Autoregressive ModelMohd Syafiq Sabri0Norlin Khalid1Abdul Hafizh Mohd Azam2Tamat Sarmidi3Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, MalaysiaFaculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, MalaysiaFaculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, MalaysiaFaculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, MalaysiaPalm oil prices, similar to other edible oils and commodity prices, are highly sensitive to external shocks which have become particularly prominent in the wake of COVID-19 pandemic. The non-stationary nature of the palm oil price complicates the modelling and forecasting of its behaviour. This study investigates the impact of the external and internal shocks on Malaysian palm oil (MPO) prices using the SVAR methodology. The SVAR model utilised in this study is unique in that it employs the news-based indices called the Infectious Disease Volatility Tracker (IDVT) and the Economic Policy Uncertainty Index (EPUI) as parts of the time series. News-based indices can potentially uncover essential proxies for economic and policy conditions, as well as portend the investment decision-making and in turn the commodity prices. The rationale behind this choice is to capture the impact from perception and news-based indices on the Malaysian palm oil prices. The empirical result from impulse–response function (IRF) shows that the shock in IDVT has a significant positive impact on Malaysian palm oil prices suggesting the MPO is exposed to the external factor. In addition, amongst the external variables tested, IDVT shows the longest lasting and highest positive impact on Malaysian palm oil prices. These results are in accordance with forecast error variance decomposition which indicates that IDVT shock can explain a huge portion of MPO prices especially over a longer period. The model specified in this study is also sufficiently stable and robust. This study contributes to the literature the significance of news-based indices and their capability in influencing public perception on the current macroeconomic condition, hence influencing the decision-making process of economic agents.https://www.mdpi.com/2227-7390/10/23/4599palm oilstructural vector autoregressive (SVAR)COVID-19infectious disease volatility trackereconomic policy uncertainty index |
| spellingShingle | Mohd Syafiq Sabri Norlin Khalid Abdul Hafizh Mohd Azam Tamat Sarmidi Impact Analysis of the External Shocks on the Prices of Malaysian Crude Palm Oil: Evidence from a Structural Vector Autoregressive Model Mathematics palm oil structural vector autoregressive (SVAR) COVID-19 infectious disease volatility tracker economic policy uncertainty index |
| title | Impact Analysis of the External Shocks on the Prices of Malaysian Crude Palm Oil: Evidence from a Structural Vector Autoregressive Model |
| title_full | Impact Analysis of the External Shocks on the Prices of Malaysian Crude Palm Oil: Evidence from a Structural Vector Autoregressive Model |
| title_fullStr | Impact Analysis of the External Shocks on the Prices of Malaysian Crude Palm Oil: Evidence from a Structural Vector Autoregressive Model |
| title_full_unstemmed | Impact Analysis of the External Shocks on the Prices of Malaysian Crude Palm Oil: Evidence from a Structural Vector Autoregressive Model |
| title_short | Impact Analysis of the External Shocks on the Prices of Malaysian Crude Palm Oil: Evidence from a Structural Vector Autoregressive Model |
| title_sort | impact analysis of the external shocks on the prices of malaysian crude palm oil evidence from a structural vector autoregressive model |
| topic | palm oil structural vector autoregressive (SVAR) COVID-19 infectious disease volatility tracker economic policy uncertainty index |
| url | https://www.mdpi.com/2227-7390/10/23/4599 |
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