Testing for bubbles in agricultural commodity markets

Francisco Areal, Kelvin Balcombe and George Rapsomanikis

No 288981, ESA Working Papers from Food and Agriculture Organization of the United Nations, Agricultural Development Economics Division (ESA)

Abstract: Food price volatility spells have fuelled the debate about the reliability of world markets as a source of food. At the heart of this debate lies the question of whether food price spikes are generated by the forces of demand and supply, or by speculation. We test for 'bubble' behaviour ' movements in the prices that cannot be explained by market fundamentals ' by applying the generalized version of the supremum Augmented Dickey-Fuller to several food price indices and 28 agricultural commodity prices. Our findings suggest that few food commodities exhibited bubble behaviour during the 2008 food price episode, with the price surges of 2010 and 2011 being due to market fundamentals. These spells of explosive behaviour are, in general, short-lived. Other commodities, which are also traded in futures markets, appear to respond only to the forces of supply and demand. Market conditions, such as stagnant productivity growth and low carry-over stocks, tend to shape the effect of speculation on prices. In some markets, trade policies, such as export bans, also appear to be crucial in generating bubble behaviour in prices.

Keywords: Agricultural and Food Policy; Consumer/Household Economics (search for similar items in EconPapers)
Date: 2014-06-10
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Testing for bubbles in agriculture commodity markets (2016)
Working Paper: Testing for bubbles in agriculture commodity markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:faoaes:288981

DOI: 10.22004/ag.econ.288981

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