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Price volatility in food markets: can stock building mitigate price fluctuations?

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  • Serra, Teresa
  • Gil, Jose Maria
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    Abstract

    This article studies US corn price fluctuations in the past two decades. Price volatility is explained by volatility clustering, the influence of energy prices, corn stocks and global economic conditions. A multivariate GARCH specification that allows for exogenous variables in the conditional covariance model is estimated both parametrically and semiparametrically. Findings provide evidence of price volatility transmission between ethanol and corn markets. They also suggest that macroeconomic instability can increase corn price volatility. Finally, stock building is found to significantly reduce corn price fluctuations.

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    File URL: http://purl.umn.edu/126055
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    Bibliographic Info

    Paper provided by International Association of Agricultural Economists in its series 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil with number 126055.

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    Date of creation: 2012
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    Handle: RePEc:ags:iaae12:126055

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    Web page: http://www.iaae-agecon.org/
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    Related research

    Keywords: corn price; ethanol; stocks; garch; Agricultural and Food Policy; Demand and Price Analysis; c32; q11;

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    1. Teresa Serra & David Zilberman & José Gil, 2011. "Price volatility in ethanol markets," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 38(2), pages 259-280, June.
    2. Nicholas Apergis & Anthony Rezitis, 2003. "Agricultural price volatility spillover effects: the case of Greece," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 30(3), pages 389-406, September.
    3. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
    4. Balcombe, Kelvin, 2009. "The Nature and Determinants of Volatility in Agricultural Prices," MPRA Paper 24819, University Library of Munich, Germany.
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    6. Buguk, Cumhur & Hudson, Darren & Hanson, Terrill R., 2003. "Price Volatility Spillover in Agricultural Markets: An Examination of U.S. Catfish Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(01), April.
    7. Pelletier, Denis, 2006. "Regime switching for dynamic correlations," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 445-473.
    8. Wright, Brian D & Williams, Jeffrey C, 1984. "The Welfare Effects of the Introduction of Storage," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 169-92, February.
    9. Kim, Kwansoo & Chavas, Jean-Paul, 2002. "A Dynamic Analysis Of The Effects Of A Price Support Program On Price Dynamics And Price Volatility," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(02), December.
    10. Brian D. Wright, 2011. "The Economics of Grain Price Volatility," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 33(1), pages 32-58.
    11. Teresa Serra & David Zilberman & José M. Gil & Barry K. Goodwin, 2011. "Nonlinearities in the U.S. corn‐ethanol‐oil‐gasoline price system," Agricultural Economics, International Association of Agricultural Economists, vol. 42(1), pages 35-45, 01.
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    17. Zibin Zhang & Luanne Lohr & Cesar Escalante & Michael Wetzstein, 2009. "Ethanol, Corn, and Soybean Price Relations in a Volatile Vehicle-Fuels Market," Energies, MDPI, Open Access Journal, vol. 2(2), pages 320-339, June.
    18. Kelvin Balcombe & George Rapsomanikis, 2008. "Bayesian Estimation and Selection of Nonlinear Vector Error Correction Models: The Case of the Sugar-Ethanol-Oil Nexus in Brazil," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(3), pages 658-668.
    19. Hardle, W. & Tsybakov, A., 1997. "Local polynomial estimators of the volatility function in nonparametric autoregression," Journal of Econometrics, Elsevier, vol. 81(1), pages 223-242, November.
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    21. Wright, Brian D & Williams, Jeffrey C, 1982. "The Economic Role of Commodity Storage," Economic Journal, Royal Economic Society, vol. 92(367), pages 596-614, September.
    22. Audrino, Francesco, 2006. "The impact of general non-parametric volatility functions in multivariate GARCH models," Computational Statistics & Data Analysis, Elsevier, vol. 50(11), pages 3032-3052, July.
    23. Natcher, William C. & Weaver, Robert D., 1999. "The Transmission Of Price Volatility In The Beef Markets," 1999 Annual meeting, August 8-11, Nashville, TN 21511, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    26. Serra, Teresa, 2011. "Volatility spillovers between food and energy markets: A semiparametric approach," Energy Economics, Elsevier, vol. 33(6), pages 1155-1164.
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    Cited by:
    1. Peri, Massimo & Baldi, Lucia, 2013. "The effect of biofuel policies on feedstock market: Empirical evidence for rapeseed oil prices in EU," Resource and Energy Economics, Elsevier, vol. 35(1), pages 18-37.

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