Revisiting the oil prices–domestic food inflation nexus in Nigeria: the role of global geopolitical risk

Abstract

PurposeThis study examines the influence of the global geopolitical risk (GPR) on the relationship between oil prices and domestic food prices under the augmented Phillips curve framework.Design/methodology/approachUsing monthly data on Nigeria from January 1995 to December 2021, the authors accommodate symmetry and asymmetry by adopting the linear and nonlinear autoregressive distributed lag, linear and nonlinear Granger causality tests.FindingsThe study establishes the positive and significant effects of both oil prices and GPR on food prices in the long and short run, though with a small magnitude in the short run. The asymmetric model shows that, while oil price shocks (positive and negative) exert a positive influence on food prices in the long-run, the effects of oil price shocks differ when accounting for GPR in the short-run. The coefficients of the interactive term, being the moderator of GPR between oil-food prices, are positively significant across models, suggesting that they jointly influence food prices when assuming linearity. The nonlinear model shows that the positive and negative components of interactive terms exert a positively significant influence on food prices, even though food prices tend to be more reactive to positive oil price shocks. The robustness checks show a unidirectional causal flow from oil prices and GPR to food prices under the linear and nonlinear models.Originality/valueThe authors examine the moderating effect of the newly developed global GPR index of Caldara and Iacoviello (2022) on the oil–food inflation relationship in Nigeria by applying the symmetric and asymmetric approaches.

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Inflation Theory: A Theoretical Review of Demand-Pull and Cost-Push Inflation Effect on Nigeria Economy

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Nonlinear Effects of Crude Oil Dependency on Food Prices in China: Evidence From Quantile-on-Quantile Approach

“…(Zmami & Ben-Salha, 2019). On the other hand, some studies use advanced econometric techniques to analyze connectivity between both variables (Adeosun et al, 2023;Mokni, 2023;Mokni & Ben-Salha, 2020;Taghizadeh-Hesary et al, 2019). Previous studies have shown different types of empirical findings between oil prices and food prices.…”

“…However, in a symmetrical situation, research has found that prices of agricultural commodities change dramatically in response to changes in oil prices (de Nicola et al, 2016;Jones & Hiller, 2017). In turn, in asymmetric regime, it is found that food prices respond differently to rising and falling oil prices (Adeosun et al, 2023;Rafiq & Bloch, 2016).…”