Bi-directional Causality Between Volatility in Output Growth and Price Growth: Evidence from Rice Production in India Using ARCH/GARCH and Panel VECM Approach

Dipyaman Pal () and Chandrima Chakraborty
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Dipyaman Pal: Bethune College
Chandrima Chakraborty: Vidyasagar University

A chapter in Risks and Resilience of Emerging Economies, 2023, pp 71-90 from Springer

Abstract: Abstract The present study measures volatility in output growth and price growth by using ARCH/GARCH method of modern time series analysis. Furthermore, this paper estimates the long-run and short-run relationship between the above two series in the case of rice considering four major rice-producing Indian states such as Andhra Pradesh, Punjab, Uttar Pradesh and West Bengal, over the period 1963–64 to 2018–19 applying the Panel-VECM model. The result demonstrates that, Andhra Pradesh and Punjab show large (small) changes in the current year’s volatility in output growth, which is due to large (small) changes in its own variance of the previous year and the lagged value of the variance of the random term of the previous period (i.e. other variables). There exists significant volatility in the price growth for all the four states out of which volatility is large for Andhra Pradesh, Uttar Pradesh and West Bengal. The results indicate that a large (small) changes in the volatility are due to the large (small) changes in their own respective variances of the previous year and the variances of random terms of the previous period. The results of the Panel-VECM clearly points out that the volatility in price growth is significantly influenced by the volatility in output growth both in the long-run and short-run. Moreover, it can be concluded that the long-run effect of volatility in price growth on the volatility in output growth is more than the reverse case.

Keywords: Output volatility; Price volatility; ARCH model; GARCH model; Q10; Q19; C22 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-981-99-4063-9_4

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DOI: 10.1007/978-981-99-4063-9_4

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