How does trade policy uncertainty affect agriculture commodity prices?

• Published in: Pacific-Basin finance journal 2021-04, Vol.66, p.101514, Article 101514
• Main Authors: Sun, Ting-Ting, Su, Chi-Wei, Mirza, Nawazish, Umar, Muhammad
• Format: Article
• Language: English
• Subjects: Agricultural commodity prices; Causality; Rolling window; Trade policy uncertainty
• ISSN: 0927-538X; 1879-0585
• DOI: 10.1016/j.pacfin.2021.101514

The present paper explores the impact of trade policy uncertainty (TPU) on agricultural commodity prices (ACP) by employing bootstrap full- and subsample rolling-window Granger causality tests. We find that TPU has both positive and negative effects on ACP, suggesting that TPU may change the supply of and demand for agricultural commodities, leading to fluctuations in ACP. These results support the hypotheses derived from the general equilibrium model, which highlights that TPU can significantly affect ACP. In turn, we find a positive impact of ACP on TPU, indicating that the agricultural commodity market reflects trade conditions in advance. In the context of Sino-U.S. trade frictions and the COVID-19 pandemic, the interaction between TPU and ACP can provide insights for governments to prevent large fluctuations in agricultural commodity markets and stabilize the national economy. •We explore the role of trade policy uncertainty (TPU) in agricultural commodity prices (ACP).•We employed the bootstrap full- and sub-sample rolling-window Granger causality tests.•Our results shows both positive and negative effects of TPU to ACP.•ACP to TPU shows only positive impact.•Our results are supported by the interaction mechanism stating the mutual influence.