What Explains the Rise in Food Price Volatility?

30 Pages Posted: 3 Jun 2010

See all articles by Shaun K. Roache

Shaun K. Roache

International Monetary Fund (IMF)

Date Written: May 2010

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.

Keywords: Agricultural prices, Commodity price fluctuations, Economic models, Food production, Inflation, Price elasticity, Price increases, Supply elasticity

Suggested Citation

Roache, Shaun K., What Explains the Rise in Food Price Volatility? (May 2010). IMF Working Papers, Vol. , pp. 1-29, 2010. Available at SSRN: https://ssrn.com/abstract=1617028

Shaun K. Roache (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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