Dynamic relationship analysis between palm oil supply shocks and domestic vegetable oil prices volatility

ObjectiveIn this paper, the interaction between palm oil supply and prices of major domestic vegetable oils was analyzed, and supply reaction of palm oil under positive and negative shocks of prices was studied, as as to provide theoretical references for palm oil import management. MethodThe interaction between supply and price was assessed un-der the framework of co-integration-GARCH and error correction-GARCH models using monthly palm oil imports , spot prices of palm oil, soybean oil and rapeseed oil, and spot price of Malaysian palm oil. Linear and nonlinear Granger test was conducted for robustness check. ResultChinese palm oil processing manufacturers and traders preferred to rely on variance information accumulated in the past long period (ARCH effect), rather than a prediction variance (GARCH ef-fect). Compared to rapeseed oil, soybean oil had much stronger adjusting force on palm oil. The shock of palm oil supply weakly affected the prices. The signal of price changes with two lags had asymmetric impact on supply of palm oil. There existed no Granger causal relation between supply and price of palm oil. SuggestionPalm oil import management, marketing building and inventory monitor should be enhance, and researches on international pricing mechanism of palm oil need to be deepened.