Oil and Food Prices for a Net Oil Importing-country: How Are Related in Indonesia?

Agus Widarjono, Indah Susantun, Sarastri M. Ruchba, Ari Rudatin

Abstract


Our study examines the asymmetric responses of food prices to oil prices in Indonesia as a net oil and food-importing country. We apply Non-linear Autoregressive Distributed Lag (NARDL) to investigate the responses of food prices to oil prices. Due to the different impacts of oil price on sub-component of the food price index, this study decomposes the general food prices index into 11 sub-components food price indices. The oil prices asymmetrically affect food prices but incomplete pass-through except the preserved fish prices. The highest impact of oil price is on beans and nuts prices, followed by cereals, roots, and their product prices. More interestingly, the response of food price to an increase in oil price is higher than the response of food price to a decrease in oil price known as rockets and feathers phenomenon for general food prices, cereals, roots, and their product prices, meat and its product prices, eggs, milk, and their product prices, bean and nuts prices, fruits prices, and fats and oil prices.

Keywords: Food Prices, Oil price, Non-Linear Autoregressive Distributed Lag, Net oil-importing country, Indonesia

JEL Classifications: C22; E31; Q11

DOI: https://doi.org/10.32479/ijeep.9557


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