What Explains the Rise in Food Price Volatility?

Shaun Roache

No 2010/129, IMF Working Papers from International Monetary Fund

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: WP; price volatility; commodity; exchange rate (search for similar items in EconPapers)
Pages: 29
Date: 2010-05-01
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Citations: View citations in EconPapers (59)

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