Modelling nonlinear relationship among vegetable oil price time series

The study of commodity price behaviour has attracts the attention of many economists and finance specialists. This is due to the fact that many less developed countries rely on the revenues generated by the commodity exports. In this paper, the nonlinear relationship because of regime shifts in four vegetable oil price series was investigated. The multivariate Markov switching vector autoregressive (MS-VAR) model with regime shifts in both the mean and the variance was employed to capture common regime shifts behaviour among the four price series. Results revealed that all the series demonstrate common regime shifts trend of declining and increasing. In addition, the MS-VAR model fitted the data better than the linear vector autoregressive model (VAR).