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Measuring food price volatility and transmission in West Africa: How important are magnitudes of transmission across cereals and countries?

Listed author(s):
  • Tharcisse NKUNZIMANA
  • François Kayitakire
Registered author(s):

    One of the pillars of food security in developing countries is the accessibility to food. Over the last decade, world food market experienced events during which food prices increased significantly. The periods of high food prices were also accompanied by a high degree of volatility in prices. Those events were somewhat transmitted on the local markets in developing countries. Traditionally, transmission of volatilities is analyzed in financial assets but the same exercise is not commonly done in agricultural markets. This research tries to handle the volatility in the selected food prices in agricultural sector and understand the magnitudes of price transmission across foods and countries. The questions to be answered in this study are the following: -Does price volatility occurs at the same degree in different cereal markets; -Is there any relationship between world/International market and domestic markets? -If there is any transmission, what is the speed of adjustment to long-run equilibrium? To measure the price transmission model, the vector error correction model (VECM) developed by Engle and Granger (1987) is used in order to establish any relationship (long-run equilibrium, short-run dynamics) between prices from the World and the domestic cereal markets in different countries. The time series properties of each of the price variables will be examined by using the Augmented Dickey-Fuller (ADF) test (Fuller, 1976). The order of integration of each of the selected cereal prices is determined. Regarding the orders of integration, VECMs or vector auto-regressions (VARs) are specified and estimated. As developed in scientific literature on time series analysis, several criteria like Akaike Information Criterion (AIC) for lag lengths are verified before the VECM and VAR models. In order to handle volatility in different food price series, the generalized autoregressive conditional heteroskedasticity (GARCH) developed by Bollerslev's (1986) as extension from Engle (1982 is used. In this paper the exponential form of GARCH model specified by Nelson (1991) is mobilized to model the asymmetric effects of price shocks on the conditional variance between the World cereal prices and the domestic markets. At this stage, we do not have results but we have some assumptions/hypothesis. The first part on the literature review is finished. As now, we have the data sets on different markets in the countries, we will quickly try to have some results and submit as soon as possible the full paper.

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    Paper provided by EcoMod in its series EcoMod2013 with number 5219.

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    Date of creation: 21 Jun 2013
    Handle: RePEc:ekd:004912:5219
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    1. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
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    7. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    8. Galtier, F., 2009. "How to Manage Food Price Instability in Developing Countries ?," Working Papers MOISA 200905, UMR MOISA : Marchés, Organisations, Institutions et Stratégies d'Acteurs : CIHEAM-IAMM, CIRAD, INRA, Montpellier SupAgro - Montpellier, France.
    9. Balcombe, Kelvin, 2009. "The Nature and Determinants of Volatility in Agricultural Prices," MPRA Paper 24819, University Library of Munich, Germany.
    10. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    11. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    12. Katsushi Imai & Raghav Gaiha & Ganesh Thapa, 2008. "Transmission of World Commodity Prices to Domestic Commodity Prices in India and China," Brooks World Poverty Institute Working Paper Series 4508, BWPI, The University of Manchester.
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