Do Food Commodity Prices Have Asymmetric Effects on Euro-Area Inflation?

50 Pages Posted: 24 Oct 2012

Date Written: September 21, 2012


This paper analyzes the relationship between commodity prices and consumer food prices in the euro area and in its largest economies (Germany, France and Italy) and tests whether the latter respond asymmetrically to shocks to the former. The issue is of particular interest for those monetary authorities that target headline consumer price inflation, which has been heavily influenced by pronounced swings in international commodity prices in the past decade. The empirical analysis is based on two distinct but complementary approaches. First, we employ a structural model to identify a shock to commodity prices and verify using formal econometric tests whether the Impulse Response Functions of food consumer prices is invariant to the sign of the commodity price shock. Next, we employ predictive regressions and examine the relative forecasting ability of linear models compared with that of models that allow for sign-dependent nonlinearities. Overall, the empirical analysis uncovers very little evidence of asymmetries.

Keywords: food prices, asymmetry, inflation

JEL Classification: C32, C53, E31, Q17

Suggested Citation

Porqueddu, Mario and Venditti, Fabrizio, Do Food Commodity Prices Have Asymmetric Effects on Euro-Area Inflation? (September 21, 2012). Bank of Italy Temi di Discussione (Working Paper) No. 878, Available at SSRN: or

Mario Porqueddu (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

Fabrizio Venditti

Bank of Italy ( email )

Via Nazionale 91
00184 Roma

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