When will food price bubbles burst? A review

Xiao-Qing Wang, Chi-Wei Su, Ran Tao and Oana-Ramona Lobonţ
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Xiao-Qing Wang: School of Economics, Ocean University of China, Qingdao, China
Chi-Wei Su: School of Economics, Qingdao University, Qingdao, China
Ran Tao: Qingdao Municipal Center for Disease Control & Preventation, Qingdao, China
Oana-Ramona Lobonţ: Department of Finance, West University of Timisoara, Timisoara, Romania

Agricultural Economics, 2018, vol. 64, issue 12, 566-573

Abstract: This paper examines whether there are multiple explosive bubble episodes in international food market by employing the Generalised Supremum Augmented Dickey-Fuller (GSADF) test. This method is particularly suitable for practical application of time series and provides an innovative consistent date-stamping strategy for the origination and termination of bubble episodes. Our results show that there are four explosive bubble episodes mostly accompanied by huge price volatilities during 1990-2017, which is largely in line with the asset pricing model (Gürkaynak 2008). The exuberance and collapse of bubble episodes can be explained by imbalance between supply and demand, depreciation of U.S. dollar, financial crisis and speculation. Our findings also provide supporting evidence for the Masters hypothesis that tremendous buying pressure from index investments contributes to substantial bubble episodes. The authorities should accurately identify bubble episode and monitor its evolving process, which is propitious to achieve the effective stabilisation of global food system. Particularly, restrictions on excessive speculative trading should be arranged under extreme market situations in order to forestall the explosion of multiple food bubbles.

Keywords: Generalised Supremum Augmented Dickey-Fuller (GSADF); food price; multiple bubbles; speculation (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:caa:jnlage:v:64:y:2018:i:12:id:21-2018-agricecon

DOI: 10.17221/21/2018-AGRICECON

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