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Considering Macroeconomic Indicators in the Food versus Fuel Issues

  • Qiu, Cheng
  • Colson, Gregory
  • Wetzstein, Michael E.

In this study, a Structural Vector Autoregression model (SVAR) is employed to decompose how supply/demand structural shocks affect food and fuel prices within fuel and corn markets. Results indicate that the relative importance of each structural shock in explaining the variation of corn prices is different. Our findings support the hypothesis that corn prices increase as a response to those positive demand shocks in the short run, while in the long run, global competitive agricultural commodities markets as well as positive supply shocks respond to commodity price shocks, restoring prices to its long-run trends. In conclusion, fundamental market forces of demand and supply as well as real economic aggregated demand shocks were the main contributors of the 2007-2008 food price spike.

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File URL: http://purl.umn.edu/103689
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Paper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 103689.

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Date of creation: 2011
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Handle: RePEc:ags:aaea11:103689
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