Interdependence among agricultural commodity markets, macroeconomic factors, crude oil and commodity index

This paper examines the degree of interdependence between three agricultural commodity prices, crude oil price returns, macroeconomic variables and the S&P GSCI commodity returns index. We apply the Aielli (2013) cDCC model using monthly data from 1982 to 2012 to estimate the dynamic correlations of the returns series and endogenously detect structural instability of the correlations. Our results indicate that crude oil price returns present statistically significant dynamic correlations with all the macroeconomic variables and the GSCI index. Additionally, we detect structural changes in these dynamic correlations mainly associated with the financial crisis of 2008. We find evidence of volatility spillover between crude oil and maize, but not among oil with soybean and sugar markets. This can be explained by an increasing interdependence between crude oil and maize price returns induced by the introduction of biofuel policies. Our results also show a significance degree of interdependence between soybeans with the US exchange rate and sugar with global economic activity. Nevertheless, only the GSCI index has significant dynamic correlations with crude oil price returns and we find no significant correlation between the GSCI with any of the agricultural price returns.