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Abstract

The increasing co-movements between world oil and food prices in the 2000s has prompted interest in the transmission mechanism among markets. This research investigates integration and price transmission of some important agricultural commodities traded in market area that includes United States and Italy for a period spanning from January 1999 to May 2012. The hypothesis of market integration is verified for crude oil and three agri-commodities wheat, corn and soybean in Italy and US. They are selected for their market relevance due to growingly demand diversified in food, feed and fuel; wheat for its higher accounting for much of the world food consumption. It is hypothesized that US and Italy agricultural markets are integrated by a consistent volume of trading and by the recognized role of the CBT price signals transmitted to the Italian agri-commodity markets. This study extends the knowledge about the oil–agricultural commodity price transmission dynamics from international (US) to domestic market (Italy).The time series analysis is used to test the structural breaks, the co-integration and price transmission and the causality. Results suggest: i)t for the US markets the evidence of market integration between crude oil and US agri-commodity prices with non linear causality direction going from oil to agri-commodity prices; ii) the integration between US and Italian agricultural markets, with no clear evidence of causality between oil and Italian agricommodities, while there is the evidence of linear causality going from US to Italian agricultural markets. The conclusion is a presence of causality going from Oil to US agri-markets and from US agri-markets to the Italian ones These information can be useful both for investors and policy makers interested in the knowledge about the nature of price movement in the international arena the close market integration and price transmissions with consequence for co-movement ,inherent dynamic market relationship, speed of adjustment, consequences of t price support policies. The agricultural policies in different countries may be organized to countervail the destabilizing effect of the oil price movement in disrupting the world market equilibrium by arbitraging the market condition to return to a situation of competitive pricing behaviour.

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