Price, inventories, and volatility in the global wheat market
The study estimates a conditional mean model for international wheat prices and inventories. Endogenous price volatility and exogenous shocks in the price and inventory series are controlled for in estimation. Redressing the empirical linkage between volatility, prices, and inventories is important because volatility increases returns to inventories, which in turn may imply prices. The problem is also important from the regulator perspective, because publicly funded inventory programs have been traditional measures in stabilizing prices and improving food security by providing a buffer against adverse yield shocks and stock-outs. The structural model underlying the estimating equations is based on a dynamic inventory optimization problem. The data suggest that the price of both wheat and wheat inventories is nonstationary and that they are significantly linked to each other in the short run but do not exhibit a stationary long-run equilibrium relationship. Price volatility is an important determinant in the short-run conditional mean processes for both the price and inventories. The pairwise causal relationships have only one direction each. Inventories imply price volatility, price volatility implies price, and price implies inventories, but not vice versa. The parameter estimates suggest that when inventories decrease, price volatility increases. Thus, low inventories have likely been among the necessary conditions, but have not been a sufficient condition by themselves, for the price surge observed in 2008. The price and inventory movements have a significant negative relationship in the very short run, but it is leveled off over time. A decreasing price implies either inventory build-ups or postponement of inventory withdrawals. Overall, the current and past inventory and price movements are not very valuable in predicting the future price movements, and it is likely that the inventory information announced each month is already in the prices.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: 2033 K Street, NW, Washington, DC 20006|
Web page: http://www.ifpri.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mitchell, Donald, 2008. "A note on rising food prices," Policy Research Working Paper Series 4682, The World Bank.
- von Braun, Joachim & Meinzen-Dick, Ruth Suseela, 2009. ""Land grabbing" by foreign investors in developing countries: Risks and opportunities," Policy briefs 13, International Food Policy Research Institute (IFPRI).
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991.
"Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?,"
Cowles Foundation Discussion Papers
979, Cowles Foundation for Research in Economics, Yale University.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
- Tom Doan, . "KPSS: RATS procedure to perform KPSS (Kwiatowski, Phillips, Schmidt, and Shin) stationarity test," Statistical Software Components RTS00100, Boston College Department of Economics.
- Robert E. Young & Lori Wilcox & Brian Willott & Gary Adams & D. Scott Brown, 1997. "Consumer Food Prices from the Ground Up," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(5), pages 1673-1676.
- Maurice J. Roche & Kieran McQuinn, 2003.
"Grain price volatility in a small open economy,"
European Review of Agricultural Economics,
Foundation for the European Review of Agricultural Economics, vol. 30(1), pages 77-98, March.
- Roche, M.J. & McQuinn, K., 2002. "Grain Price Volatility in a Small Open Economy," Economics, Finance and Accounting Department Working Paper Series n1130202.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
- Johansen, Soren, 1992.
"Determination of Cointegration Rank in the Presence of a Linear Trend,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 54(3), pages 383-97, August.
- Johansen, S., 1991. "Determination of Cointegration Rank in the Presence of a Linear Trend," Papers 76a, Helsinki - Department of Economics.
- Robert S. Pindyck, 1990.
"Inventories and the Short-Run Dynamics of Commodity Prices,"
NBER Working Papers
3295, National Bureau of Economic Research, Inc.
- Robert S. Pindyck, 1994. "Inventories and the Short-Run Dynamics of Commodity Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 141-159, Spring.
- Pindyck, Robert S., 1990. "Inventories and the short-run dynamics of commodity prices," Working papers 3133-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- von Braun, Joachim & Torero, Maximo, 2008. "Physical and virtual global food reserves to protect the poor and prevent market failure:," Policy briefs 4, International Food Policy Research Institute (IFPRI).
- Deaton, Angus & Laroque, Guy, 1995. "Estimating a Nonlinear Rational Expectations Commodity Price Model with Unobservable State Variables," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(S), pages S9-40, Suppl. De.
- James G. MacKinnon & Alfred A. Haug & Leo Michelis, 1996.
"Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration,"
1996_07, York University, Department of Economics.
- MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-77, Sept.-Oct.
- Mackinnon, J.G. & Haug, A.A. & Michelis, L., 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," G.R.E.Q.A.M. 96a09, Universite Aix-Marseille III.
- Joe Dewbre & Céline Giner & Wyatt Thompson & Martin Von Lampe, 2008. "High food commodity prices: will they stay? who will pay?," Agricultural Economics, International Association of Agricultural Economists, vol. 39(s1), pages 393-403, November.
- Miranda, Mario J. & Rui, Xiongwen, 1997. "Maximum likelihood estimation of the nonlinear rational expectations asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1493-1510, June.
- Leybourne, Stephen J. & Newbold, Paul, 2000. "BEHAVIOR OF DICKEY FULLER t-TESTS WHEN THERE IS A BREAK UNDER THE ALTERNATIVE HYPOTHESIS," Econometric Theory, Cambridge University Press, vol. 16(05), pages 779-789, October.
- Kyösti S. Pietola & Robert J. Myers, 2000. "Investment under Uncertainty and Dynamic Adjustment in the Finnish Pork Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 956-967.
When requesting a correction, please mention this item's handle: RePEc:fpr:ifprid:996. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.