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The Commodity-Price-Energy-Exchange Nexus - How Oil, Currency and Agricultural Markets Interact to Drive Food-Price Instability in Nigeria, Kenya and Ghana

John Okey Onoh PhD, Roy Maduabuchi Okpara Ph. D

Abstract

The persistent volatility of global crude-oil prices, real effective exchange-rate fluctuations, and the erratic movement of staple-commodity prices have converged to create a precarious environment for food-price stability in many low-income economies. This study investigates the simultaneous effects of crude-oil price shocks, REER movements, and volatile agricultural commodity prices on domestic food-price inflation and household food access in three West-East African economies—Nigeria, Kenya, and Ghana. Drawing on a mixed-methods framework, the research first converts quarterly fiscal balances and food-expenditure shares into monthly series using the Chow-Lin temporal-disaggregation technique, thereby enabling a high-frequency macro-econometric analysis. A sign-restricted Bayesian structural vector autoregression is then estimated for each country, incorporating an interaction term between oil-price and REER shocks and imposing theoretically motivated sign restrictions to identify amplification effects. Impulse-response functions indicate that a one-standard-deviation oil-price shock (? 15 % increase) raises food-price inflation by 0.26 %–0.30 % after twelve months, while a comparable REER depreciation (? 5 %) contributes an additional 0.32 %–0.36 % rise. The joint oil-REER shock amplifies the impact by 0.09 %–0.13 % and accounts for roughly 12 % of the forecast-error variance of food-price inflation. Variance-decomposition shows that oil, REER, and their interaction together explain about 60 % of food-price volatility in the three countries. In a second stage, the macro-estimated shocks are employed as instruments in a two-stage probit model, revealing that a one-standard-deviation increase in food-price inflation raises the probability of household food insecurity by approximately 1.5 percentage points (p < 0.01). Robustness checks—including recursive Cholesky identification, a time-varying parameter VAR, and alternative prior specifications—confirm the stabili

Keywords

commodity-price-energy-exchange nexusoil priceexchange ratefood-price inflationhousehold food securityNigeriaKenyaGhanaBayesian SVARsign restrictionsmacro-micro analysis.

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