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Testing the mean reversion in prices of agricultural commodities in India

Author

Listed:
  • Aviral Kumar Tiwari

    (IBS Hyderabad, IFHE University)

  • Aruna Kumar Dash

    (IBS Hyderabad, IFHE University)

  • Subhendu Dutta

    (IBS Hyderabad, IFHE University)

Abstract

We tested the mean reversion property of 46 agricultural commodities of India covering the period 2000:M1-2013:M1. In doing so, we used two batteries of time series tests. One battery of test is associated with testing of the null hypothesis of a unit root whereas; second battery of test is associated with testing of the null hypothesis of stationarity. We find the robust evidence of stationarity for Betelnut/Arecanut, Black Pepper, Cardamom, Cummin, Garlic, Ginger (Fresh), Guava, Poultry chicken and Turmeric. This indicates that any policy to influence the prices of these commodities will not have a permanent impact as they have a tendency to revert to the mean. Thus, we recommend to the Policymakers/Government to review the commodity futures ban for these commodities. However, if Government/Policymakers wish to control the food prices, they need to make policies which influence the prices of the commodities exhibiting the unit root behaviour. And any policy shock to these commodities will have the permanent impact and therefore, the Government/Policymaker can consider for commodity futures ban.

Suggested Citation

  • Aviral Kumar Tiwari & Aruna Kumar Dash & Subhendu Dutta, 2015. "Testing the mean reversion in prices of agricultural commodities in India," Economics Bulletin, AccessEcon, vol. 35(3), pages 1928-1940.
    • Handle: RePEc:ebl:ecbull:eb-14-00947
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    References listed on IDEAS

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    More about this item

    Keywords

    Unit Root; Inflation; Agricultural Commodity Prices; India;
    All these keywords.

    JEL classification:

    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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