Skip to main content
×
Home

Food Price Volatility and Macroeconomic Factors: Evidence from GARCH and GARCH-X Estimates

  • Nicholas Apergis (a1) and Anthony Rezitis (a2)
Abstract

This article examines food price volatility in Greece and how it is affected by short-run deviations between food prices and macroeconomic factors. The methodology follows the GARCH and GARCH-X models. The results show that there exists a positive effect between the deviations and food price volatility. The results are highly important for producers and consumers because higher volatility augments the uncertainty in the food markets. Once the participants receive a signal that the food market is volatile, this might lead them to ask for increased government intervention in the allocation of investment resources and this could reduce overall welfare.

Copyright
References
Hide All
Apergis N., and Rezitis A.Food Price Volatility and Macroeconomic Factor Volatility: ‘Heat Waves' or ‘Meteor Showers’?Applied Economics Letters 10(2003):155–60.
Attie A.P., and Roache S.K.Inflation Hedging for Long-term Investors.” IMF Working Paper No. 09/90. Washington, DC: IMF, 2009.
Ball L., and Mankiw N.G.Relative Price Change as Aggregate Supply Shocks.” NBER Working Paper No. 4168, 1992.
Barnett R.C., Bessler D.A., and Thompson R.L.The Money Supply and Nominal Agricultural Prices.American Journal of Agricultural Economics 65(1983):303307.
Berndt E.K., Hall B.H., Hall R.E., and Hausman J.A.Estimation and Inference in Nonlinear Structural Models.Annals of Economics and Social Measurement 4(1974):653–65.
Bessler D.A.Relative Prices and Money: A Vector Autoregression on Brazilian Data.American Journal of Agricultural Economics 66(1984):2530.
Blisard N., and Blaylock J.R.Estimating the Variance of Food Price Inflation.Journal of Agricultural and Applied Economics 25(1993):245–52.
Bollerslev T.Generalized Autoregressive Conditional Heteroscedasticity.Journal of Econometrics 31(1986):307–27.
Calvo G.Exploding Commodity Prices, Lax Monetary Policy, and Sovereign Wealth Funds.” 2008. Internet site: http://voxeu.org/index.php?q=node/1244.
Campiche J., Bryant H., Richardson J., and Outlaw J.Examining the Evolving Correspondence between Petroleum Prices and Agricultural Commodity Prices.” Paper presented at the American Agricultural Economic Association Meeting, Portland, OR, July 29 to August 1, 2007.
Canzoneri M.B., Cumby R.E., and Diba B.T.Fiscal Discipline and Exchange Rate Systems.The Economic Journal 111(2001):667–90.
Chambers R.G.Agricultural and Financial Market Interdependence.American Journal of Agricultural Economics 66(1984):1224.
Chambers R.G.Credit Constraints, Interest Rates and Agricultural Prices.American Journal of Agricultural Economics 67(1985):390–95.
Chambers R.G., and Just R.E.An Investigation of the Effect of Monetary Factors on Agriculture.Journal of Monetary Economics 9(1982):235–47.
Chen Y.T., and CM. Kuan. “The Pseudo-true Score Encompassing test for Non-nested Hypotheses.Journal of Econometrics 106(2002):271–95.
Chou R.Volatility Persistence and Stock Valuations: Some Empirical Evidence Using GARCH.Journal of Applied Econometrics 3(1988):279–94.
Conceicao P., and Mendoza R.U.Anatomy of the Global Food Crisis.Third World Quarterly 3(2009):16.
Daniel B.C.Uncertainty and the Timing of Taxes.Journal of International Economics 34(1993):95114.
Daniel B.C.The Fiscal Theory of the Price Level in an Open Economy.Journal of Monetary Economics 42(2001):969–88.
Daouli J., and Demoussis M.The Impact of Inflation on Prices Received and Paid by Greek Farmers.Journal of Agricultural Economics 40(1989):232–39.
Dickey D.A., and Fuller W.A.Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root.Econometrica 49(1981):105772.
Dupor B.Exchange Rates and the Fiscal Theory of the Price Level.Journal of Monetary Economics 45(2000):613–30.
Elliott G.Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution.International Economic Review 40(1999):767–84.
Elliott G., Rothenberg T.J., and Stock J.H.Efficient Tests for an Autoregressive Unit Root.Econometrica 64(1996):813–36.
Engle R.Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation.Econometrica 50(1982):9871006.
Engle R., and Bollerslev T.Modelling the Persistence of Conditional Variances.Econometric Reviews 5(1986):150.
Engle R., and Ng V.K.Measuring and Testing the Impact of News on Volatility.The Journal of Finance 48(1993):174978.
FAO. Crop Prospects and Food Situation 2009, I. Rome: FAO, 2009.
Frankel J.The Effect of Monetary Policy on Real Commodity Prices.” Asset Prices and Monetary Policy. Campbell J., ed. Chicago: University of Chicago Press, 2006.
Frankel J.Falling Interest Rates Explain Rising Commodity Prices.” 2008. Internet site: http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/03/17/falling-interest-rates-explain-rising-commodity-prices/.
Gale W.G., and Orszag P.R.Economic Effects of Sustained Fiscal Deficits.” National Tax Journal 56(2003)463–85.
Gardner B.On the Power of Macroeconomic Linkages to Explain Events in US Agriculture.American Journal of Agricultural Economics 63(1981):871–78.
Gilbert C.I.The Impact of Exchange Rates and Developing Country Debt on Commodity Prices.The Economic Journal 99(1989):773–84.
Gilbert C.I.Commodity Speculation and Commodity Investment.” Working Paper No. 0820, University of Trento, Department of Economics, 2008.
Gray J.Maize Pricing Policy in Eastern and Southern Africa.” Food Policy 17(1992).409–19.
Grennes T., and Lapp J.Neutrality of Inflation in the Agricultural Sector.Journal of International Money and Finance 5(1986):231–43.
Harri A., Nalley L., and Hudson D.The Relationship between Oil, Exchange Rates, and Commodity Prices.Journal of Agricultural and Applied Economics 41(2009):501–10.
Hauner D., and Kumar M.S.Fiscal Policy and Interest Rates: How Sustainable is the “New Economy?” IMF Working Paper No. 06/112, 2006.
Hondroyiannis G., and Papapetrou E.The Impact of Monetary Factors on Agricultural Prices in Greece.” Paper presented at the 4th Hellenic Conference for the Agricultural Economy, Thessaloniki, 1998.
Hwang S., and Satchell S.E.GARCH Model with Cross-sectional Volatility: GARCHX Models.” Working Paper, Faculty of Finance, City University Business School, UK, 2001.
Irwin S.H., and Good D.L.Market Instability in a New Era of Corn, Soybean, and Wheat Prices.Choices (New York, N.Y.) 24(2009):611.
Isaac A.G., and Rapach D.E.Monetary Shocks and Relative Farm Prices: A Re-examination.American Journal of Agricultural Economics 79(1997):133239.
Jaeger W., and Humphreys C.The Effects of Policy Reforms on Agricultural Incentives in Sub-saharan Africa.American Journal of Agricultural Economics 70(1988):103643.
Johansen S., and Juselius C.Maximum Likelihood Estimation and Inference on Cointegration-With Applications to the Demand for Money.Oxford Bulletin of Economics and Statistics 52(1990):169210.
Kargbo J.M.Impacts of Monetary and Macro-economic Factors on Food Prices in Eastern and Southern Africa.Applied Economics 32(2000):137389.
Kargbo J.M.Impacts of Monetary and Macroeconomic Factors on Food Prices in West Africa.Agrekon 44(2005):205–24.
Kargbo J.M.Forecasting Agricultural Exports and Imports in South Africa.Applied Economics 39(2007):206984.
Kliesen K.L., and Poole W.Agriculture Outcomes and Monetary Policy Actions: Kissin' Cousins?Federal Reserve Bank of St. Louis Review 82(2000):112.
Kwiatkowski D., Phillips P.C.B., Schmidt P., and Shin Y.Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root.Journal of Econometrics 54(1992):159–78.
Lach S., and Tsiddon D.The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data.The Journal of Political Economy 100(1993):349–89.
Lamoureux C.G., and Lastrapes W.D.Persistence in Variance, Structural Change, and the GARCH Model.Journal of Business & Economic Statistics 8(1990):225–34.
Lee H.S., and Siklos P.L.Unit Roots and Seasonal Unit Roots in Canadian Macroeconomic Time Series.Economics Letters 35(1991):273–77.
Lee T.H.Spread and Volatility in Spot and Forward Exchange Rates.Journal of International Money and Finance 13(1994):375–83.
Leibtag E.Corn Prices Near Record High, but What about Food Costs.” Amber Waves. U.S. Department of Agriculture, 11-15, 2008.
Loy J.P., and Weaver R.D.Inflation and Relative Price Volatility in Russian Food Markets.European Review of Agriculture Economics 25(1998):373–94.
Maravegias N.Economic and Monetary Union and the Agricultural Sector in Greece.” Agenda 2000 and the Agricultural Sector. Athens, Greece: Institute of Agricultural Research, 1997.
McMillan D.G.Spot-futures Spread and Volatility: Evidence from Metals Prices.Derivatives Use, Trading and Regulation 9(2003):3238.
Meyers W.H., Helmar M.D., Devadoss S., Young R.E., and Blandford D.Macroeconomic Impacts on the U.S. Agricultural Sector: A Quantitative Analysis for 1980-84.” Working Paper 86-WP 17, The Center for Agricultural and Rural Development, Iowa State University, 1986.
Mizon G.E.Modelling Relative Price Variability and Aggregate Inflation in the United Kingdom.The Scandinavian Journal of Economics 93(1991):189211.
Modigliani F., and Jappelli T.The Determinants of Interest Rates in the Italian Economy.Review of Economic Conditions in Italy 1(1988):934.
Nelson D.B.Conditional Heteroscedasticity in Asset Returns: A New Approach.Econometrica 55(1991):703708.
Orden D.Money and Agriculture: The Dynamics of Money-Financial Market-Agricultural Trade Linkages.Agricultural Economics Research 38(1986):1428.
Orden D., and Fackler P.L.Identifying Monetary Impacts on Agricultural Prices in VAR Models.” American Journal of Agricultural Economics 71(1989):495502.
Osborn D.R.A Survey of Seasonality in UK Macroeconomic Variables.International Journal of Forecasting 6(1990):327–36.
Perron P.Further Evidence on Breaking Trend Functions in Macroeconomic Variables.Journal of Econometrics 80(1997):355–85.
Ray D.E., Richardson J.W., De la Torre Ugarte D.G., and Tiller K.H.Estimating Price Variability in Agriculture: Implications for Decision Makers.Journal of Agricultural and Applied Economics 30(1998):2133.
Roache S.K.What Explains the Rise in Food Price Volatility?” IMF Working Paper No. 10/129, 2010.
Sahi G.S., and Raizada G.Commodity Futures Market Efficiency in India and Effects on Inflation.” 2006. Internet site: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=949161.
Saikkonen P., and Lütkepohl H.Testing for the Cointegrating Rank of a VAR Process with Structural Shifts.Journal of Business & Economic Statistics 18(2000):451–64.
Schuh G.E.The International Capital Market as a Source of Instability in International Commodity Markets.” In: Agriculture in a Turbulent World Economy, Proceedings of the Nineteenth International Conference on Agricultural Economics, Maunder A. and Renborg U. (eds.). Malaga, Spain, 1986.
Sims C.A.Macroeconomics and Reality.Econometrica 48(1980):148.
Smith V.H., and Lapp J.S.Relative Price Variability among Agricultural Commodities and Macroeconomic Instability in the United Kingdom.Agricultural Economics 44(1993):272–83.
Staikouras S.K.Testing the Stabilization Hypothesis in the UK Short-term Interest Rates: Evidence from a GARCH-X Model.The Quarterly Review of Economics and Finance 46(2006):169–89.
Stockton D.J.Relative Price Dispersion, Aggregate Price Movement, and the Natural Rate of Unemployment.Economic Inquiry 26(1988):122.
Taylor J.S., and Spriggs J.Effects of the Monetary Macroeconomy on Canadian Agricultural Prices.The Canadian Journal of Economics. Revue Canadienne d'Economique 23(1989):127889.
Tegene A.The Impact of Macrovariables on the Farm Sector: Some Further Evidence.Southern Journal of Agricultural Economics 22(1990):7785.
Thompson W., Meyer S., and Westhoff P.How Does Petroleum Price and Corn Yield Volatility Affect Ethanol Markets with and without an Ethanol Use Mandate?Energy Policy 37(2009):745–49.
Tsay R.Conditional Heteroskedastic Time Series Models.Journal of the American Statistical Association 82(1987):590604.
Varangis P.N.On the Interaction between the Variances of Money Supply, Agricultural Prices and Industrial Prices.Greek Economic Review 14(1992):129–49.
Von Braun J., and Torero M.Exploring the Price Spike.Choices (New York, N.Y.) 24(2009):1621.
Yang J., Balyeat B.R., and Leatham D.J.Futures Trading Activity and Commodity Cash Price Volatility.” Journal of Business Finance & Accounting 32(2005):297323.
Yang J., Haigh M.S., and Leatham D.J.Agricultural Liberalization Policy and Commodity Price Volatility: A GARCH Application.Applied Economics Letters 8(2001):593–98.
Yu T.H., Bessler D.A., and Fuller S.Cointegration and Causality Analysis of World Vegetable Oil and Crude Oil Prices.” Paper presented at the American Agricultural Economics Association Annual Meeting, Long Beach, CA, July 23-26, 2006.
Zanias G.P.Inflation, Agricultural Prices and Economic Convergence in Greece.European Review of Agriculture Economics 25(1998):1929.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Agricultural and Applied Economics
  • ISSN: 1074-0708
  • EISSN: 2056-7405
  • URL: /core/journals/journal-of-agricultural-and-applied-economics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Keywords:

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 114 *
Loading metrics...

Abstract views

Total abstract views: 345 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 14th December 2017. This data will be updated every 24 hours.