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A Perfect Storm or an Opportunity for Latin America: High World Commodity Prices


  • Maximo Torero


  • Miguel Robles



The current food price crisis could have an important effect of the poorest in Latin America. Although the region is fairly immune to external shocks the food price crisis have severely affect all the LA countries in terms of inflation, especially food inflation and its impact is even higher in net importing countries and on poor consumers in peri‐urban and rural areas. In this paper we review the modeling options to measure these effects and we propose to separate the analyses in two steps. First, one should try to understand how shocks in international prices are transmitted to domestic prices; and second for a given change in prices analyze the welfare impact among households. In this paper we discuss the empirical modeling options to account for price transmission and welfare effects and we also provide our own empirical estimates for welfare effects at the household level, using a quadratic AIDS estimation, for two Latin American countries: Honduras and Peru. Our empirical estimations for the welfare effects due to high food prices reveal that in Honduras national poverty might potentially be reduced in 3.5 percent points. In the case of Peru our evidence shows that national poverty is increased by 0.3 percent points. However these figures hinder important differences across different groups and therefore that there is a need for transfer‐based strategy for the extreme poor but this can only be a stop‐gap solution, and only a targeted investment approach will be able to permanently reduce the vulnerability of the poor to the food price crisis.

Suggested Citation

  • Maximo Torero & Miguel Robles, 2010. "A Perfect Storm or an Opportunity for Latin America: High World Commodity Prices," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 117-163, January.
  • Handle: RePEc:col:000425:008580

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    References listed on IDEAS

    1. Takeda, Tony & Rocha, Fabiana & Nakane, Márcio I., 2005. "The Reaction of Bank Lending to Monetary Policy in Brazil," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 59(1), January.
    2. Marco Arena & Carmen Reinhart & Francisco Vázquez, 2006. "The Lending Channel in Emerging Economics: Are Foreign Banks Different?," NBER Working Papers 12340, National Bureau of Economic Research, Inc.
    3. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, vol. 76(2), pages 237-269, May.
    4. Friedman, Milton, 1972. "Have Monetary Policies Failed?," American Economic Review, American Economic Association, vol. 62(2), pages 11-18, May.
    5. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-439, May.
    6. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
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    More about this item


    food price crisis; AIDS estimation; welfare effects; poverty; Peru; Honduras;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market


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