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How to Understand High Food Prices

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  • Christopher L. Gilbert

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    Abstract

    Commodity price booms are best explained by macroeconomic rather than market-specific factors. I argue that the rise in food prices over 2007 and the first half of 2008 should be seen as part of the wider commodity boom which is largely the result of rapid economic growth in China and throughout Asia in a context of loose money and in which, because of previous low investment, supply was inelastic. The demand for grains and oilseeds as biofuel feedstocks was the main cause of the price rise but macroeconomic and financial factors explain its extent. The futures market may be an important monetary transmission mechanism, but it is commodity investors, not speculators, who, by investing in commodities as an asset class, may have generalized prices rises across markets.

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    Paper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 0823.

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    Date of creation: 2008
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    Handle: RePEc:trn:utwpde:0823

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    Keywords: Food prices; commodity prices; money; futures markets;

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    Cited by:
    1. Jörg Mayer, 2009. "The Growing Interdependence Between Financial And Commodity Markets," UNCTAD Discussion Papers, United Nations Conference on Trade and Development 195, United Nations Conference on Trade and Development.
    2. Girardi, Daniele, 2011. "Do financial investors affect commodity prices? The case of Hard Red Winter Wheat," MPRA Paper 35670, University Library of Munich, Germany.
    3. Huda, Fakir Azmal, 2. "Process Of Global Shocks Transmission To Domestic Food Price Level: Case Of Bangladesh," International Journal of Food and Agricultural Economics (IJFAEC), Niğde University, Faculty of Economics and Administrative Sciences, Niğde University, Faculty of Economics and Administrative Sciences, vol. 2(2).

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