Modeling Volatility of Price of Some Selected Agricultural Products in Ethiopia: ARIMA-GARCH Applications

Abstract:     
Currently change of price in agricultural products is a global problem. Agricultural products market policies in Ethiopia have undergone dramatic changes over the past several years, the desirable outcome of any policy measure or other system of intervention to prevent the markets from going into market price volatility, however, remained very unsatisfactory. The main objective of this study is to fit an appropriate model that best describes the log-returns price volatility of agricultural products under consideration. The appropriate methodology in this research, a time series econometric model, for capturing behavior of financial time series data price returns and volatility having changing variance is the ARCH and GARCH models. Hence ARCH/GARCH models were employed to capture the log-return price volatility under the study. It’s observed that GARCH( 1,1), GARCH( 1,2 ) and GARCH(2,1 ) models are the most appropriate fitted models to use one has to evaluate the volatility of the log-returns of price of Cereal, pulse and oil crops respectively. Prices volatility is persistent in all three categories of selected agricultural crops.

Number of Pages in PDF File: 18

Keywords: GARCH, ARCH, price volatility, forcasting

JEL Classification: C5

working papers series