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Modelling the interaction between crude oil price and other commodities price
(Maltepe Üniversitesi, 2009) Ismail, Mohd Tahir; Kamaruzzaman, Zetty Ain
Crude oil price issues have gained much attention worldwide lately. This is due to the shortage of crude oil production, which increases the price tremendously. The fact that an increase in crude oil price will then increase the disposal income of oil exporting countries together with the demand for some commodities have outburst the primary idea of doing this research. In this paper, we study the nonlinear interactions between crude oil price changes on ¯ve commodities namely lamb, olive oil, rubber, tea, wheat and zinc by using a two regimes multivariate Markov switching vector autoregressive (MS-VAR) model with regime shifts in both the mean and the variance. The empirical results show that all the series are not cointegrated but the MS-VAR model with two regimes manage to detect common regime shifts behaviour in all the series. The estimated MS-VAR model reveals that when the crude oil price fall the price of the ¯ve commodities also moving downward and when the crude oil price gain the price of the ¯ve commodities will increase. In addition, the MS-VAR model ¯tted the data better than the linear vector autoregressive model (VAR).