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Food price pass-through in the euro area The role of asymmetries and non-linearities

  • Ferrucci, Gianluigi
  • Jiménez-Rodríguez, Rebeca
  • Onorante, Luca

In this paper we analyse the pass-through of a commodity price shock along the food price chain in the euro area. Unlike the existing literature, which mainly focuses on food commodity prices quoted in international markets, we use a novel database that accounts for the role of the Common Agricultural Policy in the European Union. We model several departures from the linear pass-through benchmark and compare alternative specifications with aggregate and disaggregate food data. Overall, when the appropriate dataset and methodology are used, it is possible to identify a significant and longlasting food price pass-through. The results of our regressions are applied to the strong increase in food prices in the 2007-08 period; a simple decomposition exercise shows that commodity prices are the main determinant of the increase in producer and consumer prices, thus solving the pass-through puzzle highlighted in the existing literature for the euro area. JEL Classification: C32, C53, E3, Q17

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Paper provided by European Central Bank in its series Working Paper Series with number 1168.

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Date of creation: Apr 2010
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Handle: RePEc:ecb:ecbwps:20101168
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