Exploring the time-frequency connectedness and network among crude oil and agriculture commodities V1

Highlights: • We examine the frequency domain connectedness between oil and agriculture commodity prices. • And use the frequency domain spillover method of Baruník and Křehlík (2018). • We show that the vegetable oil index is the most influential price volatility source for oil. • We find a bidirectional and asymmetric connectedness between oil and agriculture markets at all frequency bands. • The volatility spillover between oil and agriculture commodities increases in the long run. -- Abstract: We examine the frequency domain connectedness among international crude oil and agriculture commodities, covering the period of 1990M1-2017M5. The frequency domain connectedness is examined at three frequencies, which roughly correspond to one to six months, six to twelve months, and a period of more than twelve months. We also use a network based on pairwise correlations and a net directional matrix generated from the frequency domain spillover method. We show that the vegetable oils are the most influential price volatility source for the other agriculture commodities, such as dairy, cereals, meat and sugar, but also for the crude oil. In addition, we find a bi-directional and asymmetric connectedness between oil and agriculture commodity markets at all different frequency bands. These findings validate the preliminary results we obtain using a rolling-based bootstrap time-varying Granger causality analysis but provide additional insights as they allow to see the direction and the strength of the volatility at different frequencies. Our findings provide novel information about the production cost channel describing the relationship between oil and agriculture commodity markets. In addition, from the financialization perspective, our results show that agriculture commodity may provide portfolio diversification benefits especially in the short run.