Determinants of food price inflation: evidence from Malaysia based on linear and nonlinear ARDL

Amiratul Nadiah Hasan and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: Given the adverse impact of growing inflation on food prices and the importance of policymakers to keep the food price inflation stable, this study aims to investigate the determinants of food price inflation. This study contributes to the existing literature by employing Nonlinear ARDL (NARDL) technique to identify whether the relationship between the focused variables is linear and symmetric or not. This study finds that the variables are cointegrated in the long run. The error correction model VECM and the Variance Decompositions analysis found that the exchange rate is the most exogenous variable and the government has no control over it since it is determined by the external factors such as, supply and demand for Malaysia ringgit. Further, NARDL found that the relationship between the food price and exchange rate to be symmetric in the long run but asymmetric in the short run. Since the exchange rate is the most exogenous variable in this study and the fact that Malaysia in on flexible exchange regime, it makes it hard for the policy makers to control the fluctuations of the Malaysian exchange rate to control food price. Hence the adjustment and control of food price should be made through the reduction of the food import in order to minimise the exchange rate pass through effect on the food price inflation.

Keywords: food price inflation; exchange rate; ARDL; Nonlinear ARDL; Malaysia (search for similar items in EconPapers)
JEL-codes: C22 C58 E44 (search for similar items in EconPapers)
Date: 2018-12-31
New Economics Papers: this item is included in nep-agr, nep-mac and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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