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Impact of Monetary and Macroeconomic Factors on Wheat Prices in Pakistan: Implications for Food Security

  • Khalid Mushtaq

    ()

    (Department of Agricultural Economics, University of Agriculture, Faisalabad, Pakistan.)

  • Abdul Ghafoor

    ()

    (Department of Marketing and Agribusiness, University of Agriculture, Faisalabad, Pakistan.)

  • Abedullah

    ()

    (Department of Environmental and Resource Economics, University of Agriculture, Faisalabad, Pakistan.)

  • Farhan Ahmad

    ()

This paper attempts to evaluate the impact of monetary and macroeconomic factors on real wheat prices in Pakistan for the period 1976-2010, using Johansen’s co-integration approach. The Augmented Dickey-Fuller test reveals that all the variables used are first-difference stationary, except the trade openness indicator, which is second-difference stationary. There is also a long-run equilibrium relationship among these variables. The results indicate that real money supply, openness of the economy, and the real exchange rate have a significant effect on real wheat prices in the long run. The impulse response function shows that a trade openness shock impacted wheat prices to some extent and that it took three to four years for prices to become stable, following the shock. The findings of the study suggest that the policy thrust should focus on increasing wheat supply in the country by enhancing production or by liberalizing trade. Efforts should also be directed toward stabilizing the value of the Pakistani rupee against foreign currencies, especially the US dollar.

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Article provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.

Volume (Year): 16 (2011)
Issue (Month): 1 (Jan-Jun)
Pages: 95-110

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Handle: RePEc:lje:journl:v:16:y:2011:i:1:p:95-110
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