Nexus between Oil Shocks and Agriculture Commodities : Evidence from Time and Frequency Domain

This study presents fresh insights into the connectedness of oil shocks and agriculture commodities spanning January 1, 2006 to October 30, 2020. We employed the methodology developed by Ready (2018), which splits the oil price into demand and supply shocks. Further, we used the connectedness approach of Diebold and Yilmaz (2012) and Barunik and Krehlik (2018) to estimate the spillover network further. We reported strong intra-connectedness of agriculture commodities with substantial disconnection of oil shocks, softs, and livestock. Time-varying analysis witnesses several spikes and troughs, like global financial crisis (GFC), shale oil revolution (SOR), and COVID-19 pandemic. Moreover, short-run spillovers dominate the long-run spillovers where long-run analysis depicts persistent spillovers. Sub-sample analysis manifests that softs emit most of the spillovers to other agriculture commodities and oil shocks, whereas livestock mainly remained disconnected from the network highlighting their diversification potential for high-risk investments. Long-run spillovers for sub-sample analysis revealed pronounced continuity in shaping the network connectedness, which ultimately provides useful information for policymakers, macro-prudential authorities, investors, and portfolio managers