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Multi-Commodity Shocks and Food Import Risk in Explaining Exchange Rate Volatility in China

Chajar Matari Fath,Mala Lecturer,Sapto Jumono,2. Mala,Ika Baskara

Published 2026 in Journal of Economic Integration

ABSTRACT

This study investigates the exchange rate dynamics of the Chinese yuan under the combined influence of multi-commodity shocks and systemic financial conditions. Using daily data from 2019-2025, we apply Bai-Perron structural break tests, robust least squares, and Threshold GARCH models to disentangle mean and volatility effects across crisis regimes. The results show that oil shocks act as episodic depreciation drivers, particularly during COVID-19 and the Russia-Ukraine war, while wheat emerges as a hidden systemic risk after 2022. LNG futures appear muted at the mean—owing to China’s long-term, oil-indexed contracts—but transmit significant volatility spillovers through financial channels. In contrast, the U.S. Dollar Index and global interest rate shocks dominate both returns and volatility, validating the global financial cycle hypothesis. Introducing the concept of variance overshooting, this paper extends Dornbusch’s overshooting framework from mean adjustment to conditional variance, capturing how crises magnify volatility even when average pass-through is contained. The findings underscore China’s institutional buffers—strategic reserves, long-term contracts, and policy interventions—while highlighting the persistent limits of monetary autonomy in commodity-dependent

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