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Measuring Commodity Price Volatility And The Welfare Consequences Of Eliminating Volatility

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  • Moledina, Amyaz A.
  • Roe, Terry L.
  • Shane, Mathew

Abstract

Commodity price volatility in international markets has been used to justify numerous policy interventions, including the need for buffer stocks and counter-cyclical payments. The common measure of volatility, the standard deviation or coefficient of variation, likely overstates the actual variation faced by economic agents. By making a distinction between its predictable and unpredictable components, volatility is found to be low, suggesting that significant welfare gains may be unattainable with policy interventions designed to stabilize prices. The use of the standard deviation implies price volatility as high as 30 per cent for certain grain markets. Removing the predictable components from this measure decreases volatility to between 0.1 per cent and 15.9%. We find little evidence to suggest that volatility is increasing over time for all commodities. The benefits of eliminating low levels of commodity price volatility are small, less than 1% of consumption for the majority of commodities studied.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2004 Annual meeting, August 1-4, Denver, CO with number 19963.

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Date of creation: 2004
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Handle: RePEc:ags:aaea04:19963

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Keywords: Demand and Price Analysis;

References

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  5. Moledina, Amyaz A. & Roe, Terry L., 2000. "Exploring The Transmission Of International And Domestic Economic Shocks To U.S. Agriculture," 2000 Annual meeting, July 30-August 2, Tampa, FL 21751, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Javier Le�N & Raimundo Soto, 1997. "Structural Breaks And Long-Run Trends In Commodity Prices," Journal of International Development, John Wiley & Sons, Ltd., vol. 9(3), pages 347-366.
  7. NG, Serena & RUGE-MURCIA, Francisco J., 1997. "Explaining the Persistence of Commodity Prices," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9709, Universite de Montreal, Departement de sciences economiques.
  8. Peterson, Hikaru Hanawa & Tomek, William G., 2000. "Implications Of Deflating Commodity Prices For Time-Series Analysis," 2000 Conference, April 17-18 2000, Chicago, Illinois, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management 18944, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
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  14. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1.
  15. Xinshen Diao & Terry Roe, 2000. "How the Financial Crisis Affected World Agriculture: A General Equilibrium Perspective," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 82(3), pages 688-694.
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Citations

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Cited by:
  1. Fabienne Féménia & Alexandre Gohin, 2010. "Faut-il une intervention publique pour stabiliser les marchés agricoles ? Revue des questions non résolues," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 91(4), pages 435-456.
  2. Fabienne Femenia & Alexandre Gohin & Alain Carpentier, 2010. "The Decoupling of Farm Programs: Revisiting the Wealth Effect," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 92(3), pages 836-848.
  3. Uchezuba, I.D. & Jooste, Andre & Willemse, Johan, 2010. "Measuring Asymmetric Price and Volatility Spillover in the South African Broiler Market," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Afri 96434, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Africa (AEASA).
  4. Thorne, Fiona S., 2012. "Potato Prices as Affected by Supply and Demand Factors: An Irish Case Study," 123rd Seminar, February 23-24, 2012, Dublin, Ireland, European Association of Agricultural Economists 122473, European Association of Agricultural Economists.
  5. Calvo-Gonzalez, Oscar & Shankar, Rashmi & Trezzi, Riccardo, 2010. "Are commodity prices more volatile now ? a long-run perspective," Policy Research Working Paper Series 5460, The World Bank.
  6. Figiel, Szczepan & Hamulczuk, Mariusz, 2012. "Price Risk in the Wheat Market in Poland," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil, International Association of Agricultural Economists 126144, International Association of Agricultural Economists.
  7. Jordaan, Henry & Grove, Bennie & Jooste, Andre & Alemu, A.G., 2007. "Measuring the Price Volatility of Certain Field Crops in South Africa using the ARCH/GARCH Approach," Agrekon, Agricultural Economics Association of South Africa (AEASA), Agricultural Economics Association of South Africa (AEASA), vol. 46(3), September.

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