What Explains the Rise in Food Price Volatility?

Abstract

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.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.

Uji Empirik Metode Pengukuran Hedging Ratio dan Efektivitas Hedging di Bursa Komoditas Berjangka Jakarta

“…Satu dekade terakhir harga pangan mengalami kenaikan volatilitas yang cukup signifikan (Roache, 2010;Wright, 2011). Fluktuasi harga yang tinggi tidak hanya terjadi pada bahan makanan pokok, tetapi juga bahan pangan penopang seperti minyak goreng yang digunakan sebagian besar penduduk Asia untuk memasak.…”

International Transmission of Food Prices and Volatilities: A Panel Analysis

“…Noting the importance of food price volatility in policy responses, Kharas (2011) argues, "The crux of the food price challenge is about price volatility, rather than high prices per se." Roache (2010) also observes, " [V]olatility has made the policy response to changes in food prices more challenging and complicated the investment and consumption decisions of many businesses and consumers. "…”

A Roller Coaster Ride: An Empirical Investigation of the Main Drivers of Wheat Price

“…For instance, exchange rates can influence commodity prices through several conduits, such as international purchasing power and the effects on margins for producers with non-US dollar costs (Mussa 1986;Gilbert 1989;Borensztein and Reinhart 1994;Roache 2010;Manera et al 2013). This means that dollar depreciation increases costs to US producers and consumers in areas where the US dollar is the currency of trade.…”

“…Inflation tends to affect commodity prices through the portfolio choices of financial investors; this occurs because holding commodities can hedge investment portfolios against inflation risks (Roache 2010). The inflation rate is computed using changes in the US consumer price index.…”