CPO Price Dynamics Amid Geopolitical Turmoil in the Strait of Hormuz: A Vector Error Correction Model (VECM) Approach

Abstract

This study analyzes the dynamics of CPO prices amid the geopolitical turmoil in the Strait of Hormuz, taking into account exchange rates, inflation, and economic growth. The research uses daily data and the Vector Error Correction Model (VECM) method to examine short- and long-term relationships, causality, responses to shocks, and the contribution of variables to changes in CPO prices. The results show a long-term equilibrium among the variables, while inflation plays a role in short-term dynamics. CPO prices respond to macroeconomic shocks, with economic growth contributing more over longer horizons. These findings highlight the importance of macroeconomic conditions and global energy in managing CPO price risks, as well as strengthening downstream development and biodiesel policies.