Food Price Pass-Through in the Euro Area - The Role of Asymmetries and Non-Linearities
35 Pages Posted: 19 Apr 2010
Date Written: March 25, 2010
In this paper we analyse the pass-through of a commodity price shock along the food price chain in the euro area. Unlike the existing literature, which mainly focuses on food commodity prices quoted in international markets, we use a novel database that accounts for the role of the Common Agricultural Policy in the European Union. We model several departures from the linear pass-through benchmark and compare alternative specifications with aggregate and disaggregate food data. Overall, when the appropriate dataset and methodology are used, it is possible to identify a significant and longlasting food price pass-through. The results of our regressions are applied to the strong increase in food prices in the 2007-08 period; a simple decomposition exercise shows that commodity prices are the main determinant of the increase in producer and consumer prices, thus solving the pass-through puzzle highlighted in the existing literature for the euro area.
Keywords: food commodity prices, inflation, non-linearities, pass-through
JEL Classification: C32, C53, E3, Q17
Suggested Citation: Suggested Citation
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By Joe Crowley