Abstract: In order to grasp the effects of rising crude oil price on the main grain varieties in China, This paper empirically explores the daily transaction data of international oil futures, domestic soybean, corn and wheat futures from 2004 to 2013. By using the recently proposed STCC-MGARCH and DSTCC-MGARCH Model, We examine the correlation between international oil price and domestic food price as well as the characteristics of the zone system transfer. The study finds that among the three grain varieties, correlation coefficients of the price of soybean, corn and wheat to oil price all show varying degrees of characteristics of regime switching characteristics when affected by rising oil price. In the area before and after the switching point, the correlation coefficients of the price of soybean, corn and wheat to oil price are significantly raised, among which the increase of coefficient between corn price and oil price grows is much more than that of soybean, and the coefficient between wheat price and oil price is small and also growing much less. These show that domestic corn price is most affected by international oil price, and its attribute of the energy characteristics is most significant. The main reason why the corn price is most affected by rising oil price is that the capacity expansion of ethanol gasoline caused by rising oil price would lead to sharply increased demand of corn. As the increase of corn price would cause extrusion effects and substitution effect on the production and consumptions of other grain varieties, we should give enough vigilance.

Keyword: crude oil price; food price; dynamic correlation; smooth transition conditional correlation multivariate GARCH model