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What Explains the Rise in Food Price Volatility?

Author/Editor: Roache, Shaun K.
Authorized for Distribution: May 1, 2010
Electronic Access: Free Full Text (PDF file size is 943KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
 
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Series: Working Paper No. 10/129
Subject(s): Agricultural prices | Commodity price fluctuations | Economic models | Food production | Inflation | Price elasticity | Price increases | Supply elasticity
Author's keyword(s): Commodity markets | volatility | agricultural economics
 
English  
    Published:   May 1, 2010        
            Format:   Paper
    Stock No:   WPIEA2010129   Pages:   29
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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