Advances in Economics and Business Vol. 3(2), pp. 50 - 56
DOI: 10.13189/aeb.2015.030203
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Analysis of the Interrelationships between the Prices of Sri Lankan Rubber, Tea and Coconut Production Using Multivariate Time Series


Kwadwo Agyei Nyantakyi *, B. L. Peiris , L. H. P. Gunaratne
Postgraduate Institute of Agriculture, University of Peradeniya, Sri Lanka

ABSTRACT

With the globalization of the economy and the financial markets today, price movement of one market can spread easily and instantly to another market. Because of these financial markets are more or less dependent on each other, there is a need to study their interrelationships to understand the dynamic structure of the financial economy. In this paper, we use Vector Auto Regression (VAR) Analysis to study the interdependency of the price of tea, rubber and coconut production in Sri Lanka. We also measured the strength of the linear interrelationship between the assets using the cross-correlation matrix (CCM) and also fit a VAR-model using selection criteria based on the AIC, SIC and HQIC. We examined the individual behaviour of the separate prices of each asset and then analysed the combined effects of the prices. Out of all computing models, we observed that tea price was ARIMA (0,1,0), rubber price was ARIMA (3, 1, 1) and coconut price is ARIMA (0, 1, 3). Thus they were all integrated of order I(1). We investigate if there is a cointegration between the assets to see if there was a long-run equilibrium, and there was at most one cointgretion equation. Hence we used the Vector Error Correction model (VECM), for the estimation. We observed that coefficients between any of the variables were not equal to zero. The coefficient estimates between tea and rubber were not the same as between rubber and tea at all lags, between tea and coconut, as well as between rubber and coconut. Which indicate that there may be feedback relationship between all the three series. Further, impulse response analyses were used to observe the impacts. There was a fairly strong correlation between them, hence it could be concluded that, there is a linear dependency of all the variables.

KEYWORDS
Cross-correlation Matrix, Cointegration, Vector Error Correction

Cite this paper
Kwadwo Agyei Nyantakyi , B. L. Peiris , L. H. P. Gunaratne . "Analysis of the Interrelationships between the Prices of Sri Lankan Rubber, Tea and Coconut Production Using Multivariate Time Series." Advances in Economics and Business 3.2 (2015) 50 - 56. doi: 10.13189/aeb.2015.030203.