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What Explains the Rise in Food Price Volatility?

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  • Shaun K. Roache

Abstract

The macroeconomic effects of large food price swings can be broad and far-reaching, including the balance of payments of importers and exporters, budgets, inflation, and poverty. For market participants and policymakers, managing low frequency volatility—i.e., the component of volatility that persists for longer than one harvest year—may be more challenging as uncertainty regarding its persistence is likely to be higher. This paper measures the low frequency volatility of food commodity spot prices using the spline- GARCH approach. It finds that low frequency volatility is positively correlated across different commodities, suggesting an important role for common factors. It also identifies a number of determinants of low frequency volatility, two of which—the variation in U.S. inflation and the U.S. dollar exchange rate—explain a relatively large part of the rise in volatility since the mid-1990s.

Suggested Citation

  • Shaun K. Roache, 2010. "What Explains the Rise in Food Price Volatility?," IMF Working Papers 10/129, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/129
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    1. Interesting readings
      by Ajay Shah in Ajay Shah's blog on 2010-08-04 12:34:00

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    Cited by:

    1. Kuhanathan Ano Sujithan & Sanvi Avouyi-Dovi & Lyes Koliai, 2014. "On the determinants of food price volatility," Post-Print hal-01511900, HAL.
    2. Abdelradi, Fadi & Serra, Teresa, 2015. "Food–energy nexus in Europe: Price volatility approach," Energy Economics, Elsevier, vol. 48(C), pages 157-167.
    3. Hervé Ott, 2014. "Extent and possible causes of intrayear agricultural commodity price volatility," Agricultural Economics, International Association of Agricultural Economists, vol. 45(2), pages 225-252, March.
    4. Dasgupta, Dipak & Dubey, R.N. & Sathish, R, 2011. "Domestic Wheat Price Formation and Food Inflation in India," MPRA Paper 31564, University Library of Munich, Germany.
    5. Maitre d'Hotel, Elodie & le Cotty, Tristan & Jayne, Thomas S., 2012. "Is A Public Regulation Of Food Price Volatility Feasible In Africa? An Arch Approach In Kenya," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122551, European Association of Agricultural Economists.
    6. Daniel Ciuiu, 2017. "Bayesian Inference for Linear Regression," Working Papers of Macroeconomic Modelling Seminar 170803, Institute for Economic Forecasting.
    7. Corina Saman, 2016. "Volatilitatea prețurilor la produsele din carne de bovine și porcine porcine (Volatility of prices for beef and swine meat in Romania)," Working Papers of Macroeconomic Modelling Seminar 162703, Institute for Economic Forecasting.
    8. repec:eee:ecmode:v:70:y:2018:i:c:p:543-560 is not listed on IDEAS
    9. Ott, Herve, 2012. "Which factors drive which volatility in the grain sector?," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122486, European Association of Agricultural Economists.
    10. Rude, James & An, Henry, 2015. "Explaining grain and oilseed price volatility: The role of export restrictions," Food Policy, Elsevier, vol. 57(C), pages 83-92.
    11. Huchet, Nicolas & Fam, Papa Gueye, 2016. "The role of speculation in international futures markets on commodity prices," Research in International Business and Finance, Elsevier, vol. 37(C), pages 49-65.
    12. Bernardina Algieri, 2014. "A roller coaster ride: an empirical investigation of the main drivers of the international wheat price," Agricultural Economics, International Association of Agricultural Economists, vol. 45(4), pages 459-475, July.
    13. repec:dau:papers:123456789/12798 is not listed on IDEAS
    14. Mori-Clement, Yadira & Bhaduri, Anik & Djanibekov, Nodir, 2014. "Food price fluctuations in Uzbekistan: Evidences from local markets in 2002-2010," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 183091, European Association of Agricultural Economists.
    15. Jebabli, Ikram & Arouri, Mohamed & Teulon, Frédéric, 2014. "On the effects of world stock market and oil price shocks on food prices: An empirical investigation based on TVP-VAR models with stochastic volatility," Energy Economics, Elsevier, vol. 45(C), pages 66-98.
    16. Reboredo, Juan C., 2012. "Do food and oil prices co-move?," Energy Policy, Elsevier, vol. 49(C), pages 456-467.
    17. Haase, Marco & Seiler Zimmermann, Yvonne & Zimmermann, Heinz, 2016. "The impact of speculation on commodity futures markets – A review of the findings of 100 empirical studies," Journal of Commodity Markets, Elsevier, vol. 3(1), pages 1-15.
    18. Bernhard Brümmer & Olaf Korn & Kristina Schlüßler & Tinoush Jamali Jaghdani, 2016. "Volatility in Oilseeds and Vegetable Oils Markets: Drivers and Spillovers," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(3), pages 685-705, September.
    19. Bellemare, Marc F. & Barrett, Christopher B. & Just, David R., 2010. "The Welfare Impacts of Commodity Price Fluctuations: Evidence from Rural Ethiopia," MPRA Paper 24457, University Library of Munich, Germany.
    20. Dipak Dasgupta & R N Dubey & R Satish, 2011. "Domestic Wheat Price Formation and Food Inflation in India: International Prices, Domestic Drivers (Stocks, Weather, Public Policy), and the Efficacy of Public Policy Interventions in Wheat Markets," Working Papers id:4291, eSocialSciences.

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    Keywords

    Commodity markets; Volatility; Agricultural Economics; food price; commodity prices; palm oil; futures markets; open interest; General Financial Markets;

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