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What Explains the Rise in Food Price Volatility?

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  • Shaun K. Roache
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    Abstract

    The macroeconomic effects of large food price swings can be broad and far-reaching, including the balance of payments of importers and exporters, budgets, inflation, and poverty. For market participants and policymakers, managing low frequency volatility-i.e., the component of volatility that persists for longer than one harvest year-may be more challenging as uncertainty regarding its persistence is likely to be higher. This paper measures the low frequency volatility of food commodity spot prices using the spline- GARCH approach. It finds that low frequency volatility is positively correlated across different commodities, suggesting an important role for common factors. It also identifies a number of determinants of low frequency volatility, two of which-the variation in U.S. inflation and the U.S. dollar exchange rate-explain a relatively large part of the rise in volatility since the mid-1990s.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/129.

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    Length: 29
    Date of creation: 01 May 2010
    Date of revision:
    Handle: RePEc:imf:imfwpa:10/129

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    Related research

    Keywords: Commodity markets; Agricultural prices; Commodity price fluctuations; Economic models; Food production; Price elasticity; Price increases; Supply elasticity;

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    References

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    1. David S. Jacks, Kevin H. O'Rourke and Jeffrey G. Williamson, 2009. "Commodity Price Volatility and World Market Integration since 1700," The Institute for International Integration Studies Discussion Paper Series iiisdp284, IIIS.
    2. Robles, Miguel & Torero, Maximo & von Braun, Joachim, 2009. "When speculation matters:," Issue briefs 57, International Food Policy Research Institute (IFPRI).
    3. Amanor-Boadu, Vincent & Zereyesus, Yacob Abrehe, 2009. "How Much Did Speculation Contribute to Recent Food Price Inflation?," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46841, Southern Agricultural Economics Association.
    4. Askari, Hossein & Cummings, John Thomas, 1977. "Estimating Agricultural Supply Response with the Nerlove Model: A Survey," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 257-92, June.
    5. Allan D. Brunner, 2002. "El Niño and World Primary Commodity Prices: Warm Water or Hot Air?," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 176-183, February.
    6. Weaver, Robert D & Natcher, William C, 2000. "Commodity Price Volatility under New Market Orientations," MPRA Paper 9862, University Library of Munich, Germany.
    7. Seale, James L., Jr. & Regmi, Anita & Bernstein, Jason, 2003. "International Evidence On Food Consumption Patterns," Technical Bulletins 33580, United States Department of Agriculture, Economic Research Service.
    8. Peterson, Hikaru Hanawa & Tomek, William G., 2003. "How Much Of Commodity Price Behavior Can A Rational Expectations Storage Model Explain?," Staff Papers 30712, Kansas State University, Department of Agricultural Economics.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Interesting readings
      by Ajay Shah in Ajay Shah's blog on 2010-08-04 07:34:00
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    Cited by:
    1. Ott, Herve, 2012. "Which factors drive which volatility in the grain sector?," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122486, European Association of Agricultural Economists.
    2. Maitre d'Hotel, Elodie & le Cotty, Tristan & Jayne, Thomas S., 2012. "Is A Public Regulation Of Food Price Volatility Feasible In Africa? An Arch Approach In Kenya," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122551, European Association of Agricultural Economists.
    3. Bellemare, Marc F. & Barrett, Christopher B. & Just, David R., 2010. "The Welfare Impacts of Commodity Price Fluctuations: Evidence from Rural Ethiopia," MPRA Paper 24457, University Library of Munich, Germany.
    4. Dipak Dasgupta & R N Dubey & R Satish, 2011. "Domestic Wheat Price Formation and Food Inflation in India: International Prices, Domestic Drivers (Stocks, Weather, Public Policy), and the Efficacy of Public Policy Interventions in Wheat Markets," Working Papers id:4291, eSocialSciences.
    5. Dasgupta, Dipak & Dubey, R.N. & Sathish, R, 2011. "Domestic Wheat Price Formation and Food Inflation in India," MPRA Paper 31564, University Library of Munich, Germany.

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