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Measuring Commodity Price Volatility And The Welfare Consequences Of Eliminating Volatility

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  • Moledina, Amyaz A.
  • Roe, Terry L.
  • Shane, Mathew

Abstract

Commodity price volatility in international markets has been used to justify numerous policy interventions, including the need for buffer stocks and counter-cyclical payments. The common measure of volatility, the standard deviation or coefficient of variation, likely overstates the actual variation faced by economic agents. By making a distinction between its predictable and unpredictable components, volatility is found to be low, suggesting that significant welfare gains may be unattainable with policy interventions designed to stabilize prices. The use of the standard deviation implies price volatility as high as 30 per cent for certain grain markets. Removing the predictable components from this measure decreases volatility to between 0.1 per cent and 15.9%. We find little evidence to suggest that volatility is increasing over time for all commodities. The benefits of eliminating low levels of commodity price volatility are small, less than 1% of consumption for the majority of commodities studied.

Suggested Citation

  • Moledina, Amyaz A. & Roe, Terry L. & Shane, Mathew, 2004. "Measuring Commodity Price Volatility And The Welfare Consequences Of Eliminating Volatility," 2004 Annual meeting, August 1-4, Denver, CO 19963, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea04:19963
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    Cited by:

    1. Fabienne Féménia & Alexandre Gohin, 2010. "Faut-il une intervention publique pour stabiliser les marchés agricoles ? Revue des questions non résolues," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 91(4), pages 435-456.
    2. Fabienne Femenia & Alexandre Gohin & Alain Carpentier, 2010. "The Decoupling of Farm Programs: Revisiting the Wealth Effect," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, pages 836-848.
    3. Sarker, Rakhal & Oyewumi, Olubukola Ayodeji, 1. "Trade Policy Change And Price Volatility Spill-Over In A Customs Union: A Case Study Of Lamb Trade Between Namibia And South Africa," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 3(1).
    4. Thorne, Fiona S., 2012. "Potato Prices as Affected by Supply and Demand Factors: An Irish Case Study," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122473, European Association of Agricultural Economists.
    5. Figiel, Szczepan & Hamulczuk, Mariusz, 2012. "Price Risk in the Wheat Market in Poland," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126144, International Association of Agricultural Economists.
    6. Antonios Antypas & Phoebe Koundouri & Nikolaos Kourogenis, "undated". "Volatility Trends and Optimal Portfolios: the Case of Agricultural Commodities," DEOS Working Papers 1113, Athens University of Economics and Business.
    7. repec:ebl:ecbull:eb-17-00592 is not listed on IDEAS
    8. Jordaan, Henry & Grove, Bennie & Jooste, Andre & Alemu, A.G., 2007. "Measuring the Price Volatility of Certain Field Crops in South Africa using the ARCH/GARCH Approach," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 46(3), September.
    9. Uchezuba, I.D. & Jooste, Andre & Willemse, Johan, 2010. "Measuring Asymmetric Price and Volatility Spillover in the South African Broiler Market," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96434, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Africa (AEASA).
    10. Calvo-Gonzalez, Oscar & Shankar, Rashmi & Trezzi, Riccardo, 2010. "Are commodity prices more volatile now ? a long-run perspective," Policy Research Working Paper Series 5460, The World Bank.

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    Keywords

    Demand and Price Analysis;

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