Extracting the Common Component of Biofuel Commodities and Assessing its Dynamic Relationship with Dubai Fatech Index and Philippines Consumer Price Indexes

Abstract

This study calculates the common component of biofuel commodities from January 1994 to May 2022. It then uses the vector autoregression model to analyze the relationship between the common component, Dubai Fateh crude oil price, and Philippines food and transportation consumer price indexes. The impulse response function shows that a one-time shock on the LP common component creates a positive effect on crude oil prices, while a one–time shock in crude oil prices generates the same positive effect on the LP common component. From the decomposition of the LP common component, crude oil explains 0.066345 per cent of changes in the said variable, whereas food and transportation indexes describe 0.133670 per cent and 0.023652 per cent variability in the LP common component, respectively.