Hostname: page-component-8448b6f56d-mp689 Total loading time: 0 Render date: 2024-04-19T21:13:32.069Z Has data issue: false hasContentIssue false
  • English
  • Français

Food Price Volatility and Macroeconomic Factors: Evidence from GARCH and GARCH-X Estimates

Published online by Cambridge University Press:  26 January 2015

Nicholas Apergis  and
Anthony Rezitis
Nicholas Apergis
Affiliation:
Department of Banking and Financial Management, University of Piraeus, Piraeus, Greece
Anthony Rezitis
Affiliation:
Department of Farm Organization and Management, University of Ioannina, Agrinio, Greece
Get access

Abstract

This article examines food price volatility in Greece and how it is affected by short-run deviations between food prices and macroeconomic factors. The methodology follows the GARCH and GARCH-X models. The results show that there exists a positive effect between the deviations and food price volatility. The results are highly important for producers and consumers because higher volatility augments the uncertainty in the food markets. Once the participants receive a signal that the food market is volatile, this might lead them to ask for increased government intervention in the allocation of investment resources and this could reduce overall welfare.

Keywords

relative food pricesvolatilitymacroeconomic factorsGARCH and GARCH-X modelsE60Q10Q19
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 43 , Issue 1 , February 2011 , pp. 95 - 110
Copyright
Copyright © Southern Agricultural Economics Association 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Apergis, N., and Rezitis, A. “Food Price Volatility and Macroeconomic Factor Volatility: ‘Heat Waves' or ‘Meteor Showers’?” Applied Economics Letters 10(2003):155–60.10.1080/1350485022000044011Google Scholar
Attie, A.P., and Roache, S.K. “Inflation Hedging for Long-term Investors.” IMF Working Paper No. 09/90. Washington, DC: IMF, 2009.Google Scholar
Ball, L., and Mankiw, N.G. “Relative Price Change as Aggregate Supply Shocks.” NBER Working Paper No. 4168, 1992.Google Scholar
Barnett, R.C., Bessler, D.A., and Thompson, R.L. “The Money Supply and Nominal Agricultural Prices.” American Journal of Agricultural Economics 65(1983):303–307.10.2307/1240878Google Scholar
Berndt, E.K., Hall, B.H., Hall, R.E., and Hausman, J.A. “Estimation and Inference in Nonlinear Structural Models.” Annals of Economics and Social Measurement 4(1974):653–65.Google Scholar
Bessler, D.A. “Relative Prices and Money: A Vector Autoregression on Brazilian Data.” American Journal of Agricultural Economics 66(1984):25–30.10.2307/1240612Google Scholar
Blisard, N., and Blaylock, J.R. “Estimating the Variance of Food Price Inflation.” Journal of Agricultural and Applied Economics 25(1993):245–52.Google Scholar
Bollerslev, T. “Generalized Autoregressive Conditional Heteroscedasticity.” Journal of Econometrics 31(1986):307–27.10.1016/0304-4076(86)90063-1Google Scholar
Calvo, G. “Exploding Commodity Prices, Lax Monetary Policy, and Sovereign Wealth Funds.” 2008. Internet site: http://voxeu.org/index.php?q=node/1244.Google Scholar
Campiche, J., Bryant, H., Richardson, J., and Outlaw, J. “Examining the Evolving Correspondence between Petroleum Prices and Agricultural Commodity Prices.” Paper presented at the American Agricultural Economic Association Meeting, Portland, OR, July 29 to August 1, 2007.Google Scholar
Canzoneri, M.B., Cumby, R.E., and Diba, B.T. “Fiscal Discipline and Exchange Rate Systems.” The Economic Journal 111(2001):667–90.10.1111/1468-0297.00655Google Scholar
Chambers, R.G. “Agricultural and Financial Market Interdependence.” American Journal of Agricultural Economics 66(1984):12–24.10.2307/1240611Google Scholar
Chambers, R.G. “Credit Constraints, Interest Rates and Agricultural Prices.” American Journal of Agricultural Economics 67(1985):390–95.10.2307/1240704Google Scholar
Chambers, R.G., and Just, R.E. “An Investigation of the Effect of Monetary Factors on Agriculture.” Journal of Monetary Economics 9(1982):235–47.10.1016/0304-3932(82)90044-7Google Scholar
Chen, Y.T., and CM. Kuan. “The Pseudo-true Score Encompassing test for Non-nested Hypotheses.” Journal of Econometrics 106(2002):271–95.10.1016/S0304-4076(01)00101-4Google Scholar
Chou, R. “Volatility Persistence and Stock Valuations: Some Empirical Evidence Using GARCH.” Journal of Applied Econometrics 3(1988):279–94.10.1002/jae.3950030404Google Scholar
Conceicao, P., and Mendoza, R.U. “Anatomy of the Global Food Crisis.” Third World Quarterly 3(2009):1–6.Google Scholar
Daniel, B.C. “Uncertainty and the Timing of Taxes.” Journal of International Economics 34(1993):95–114.10.1016/0022-1996(93)90068-9Google Scholar
Daniel, B.C. “The Fiscal Theory of the Price Level in an Open Economy.” Journal of Monetary Economics 42(2001):969–88.Google Scholar
Daouli, J., and Demoussis, M. “The Impact of Inflation on Prices Received and Paid by Greek Farmers.” Journal of Agricultural Economics 40(1989):232–39.10.1111/j.1477-9552.1989.tb01102.xGoogle Scholar
Dickey, D.A., and Fuller, W.A. “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root.” Econometrica 49(1981):1057–72.10.2307/1912517Google Scholar
Dupor, B. “Exchange Rates and the Fiscal Theory of the Price Level.” Journal of Monetary Economics 45(2000):613–30.10.1016/S0304-3932(00)00006-4Google Scholar
Elliott, G. “Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution.” International Economic Review 40(1999):767–84.10.1111/1468-2354.00039Google Scholar
Elliott, G., Rothenberg, T.J., and Stock, J.H. “Efficient Tests for an Autoregressive Unit Root.” Econometrica 64(1996):813–36.10.2307/2171846Google Scholar
Engle, R. “Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation.” Econometrica 50(1982):987–1006.10.2307/1912773Google Scholar
Engle, R., and Bollerslev, T. “Modelling the Persistence of Conditional Variances.” Econometric Reviews 5(1986):1–50.10.1080/07474938608800095Google Scholar
Engle, R., and Ng, V.K. “Measuring and Testing the Impact of News on Volatility.” The Journal of Finance 48(1993):1749–78.10.1111/j.1540-6261.1993.tb05127.xGoogle Scholar
FAO. Crop Prospects and Food Situation 2009, I. Rome: FAO, 2009.Google Scholar
Frankel, J. “The Effect of Monetary Policy on Real Commodity Prices.” Asset Prices and Monetary Policy. Campbell, J., ed. Chicago: University of Chicago Press, 2006.Google Scholar
Frankel, J. “Falling Interest Rates Explain Rising Commodity Prices.” 2008. Internet site: http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/03/17/falling-interest-rates-explain-rising-commodity-prices/.Google Scholar
Gale, W.G., and Orszag, P.R. “Economic Effects of Sustained Fiscal Deficits.” National Tax Journal 56(2003)463–85.Google Scholar
Gardner, B. “On the Power of Macroeconomic Linkages to Explain Events in US Agriculture.” American Journal of Agricultural Economics 63(1981):871–78.10.2307/1241262Google Scholar
Gilbert, C.I. “The Impact of Exchange Rates and Developing Country Debt on Commodity Prices.” The Economic Journal 99(1989):773–84.10.2307/2233770Google Scholar
Gilbert, C.I. “Commodity Speculation and Commodity Investment.” Working Paper No. 0820, University of Trento, Department of Economics, 2008.Google Scholar
Gray, J. “Maize Pricing Policy in Eastern and Southern Africa.” Food Policy 17(1992).409–19.10.1016/0306-9192(92)90073-7Google Scholar
Grennes, T., and Lapp, J. “Neutrality of Inflation in the Agricultural Sector.” Journal of International Money and Finance 5(1986):231–43.10.1016/0261-5606(86)90044-6Google Scholar
Harri, A., Nalley, L., and Hudson, D. “The Relationship between Oil, Exchange Rates, and Commodity Prices.” Journal of Agricultural and Applied Economics 41(2009):501–10.Google Scholar
Hauner, D., and Kumar, M.S. “Fiscal Policy and Interest Rates: How Sustainable is the “New Economy?” IMF Working Paper No. 06/112, 2006.Google Scholar
Hondroyiannis, G., and Papapetrou, E. “The Impact of Monetary Factors on Agricultural Prices in Greece.” Paper presented at the 4th Hellenic Conference for the Agricultural Economy, Thessaloniki, 1998.Google Scholar
Hwang, S., and Satchell, S.E. “GARCH Model with Cross-sectional Volatility: GARCHX Models.” Working Paper, Faculty of Finance, City University Business School, UK, 2001.Google Scholar
Irwin, S.H., and Good, D.L. “Market Instability in a New Era of Corn, Soybean, and Wheat Prices.” Choices (New York, N.Y.) 24(2009):6–11.Google Scholar
Isaac, A.G., and Rapach, D.E. “Monetary Shocks and Relative Farm Prices: A Re-examination.” American Journal of Agricultural Economics 79(1997):1332–39.10.2307/1244289Google Scholar
Jaeger, W., and Humphreys, C. “The Effects of Policy Reforms on Agricultural Incentives in Sub-saharan Africa.” American Journal of Agricultural Economics 70(1988):1036–43.10.2307/1241732Google Scholar
Johansen, S., and Juselius, C. “Maximum Likelihood Estimation and Inference on Cointegration-With Applications to the Demand for Money.” Oxford Bulletin of Economics and Statistics 52(1990):169–210.Google Scholar
Kargbo, J.M. “Impacts of Monetary and Macro-economic Factors on Food Prices in Eastern and Southern Africa.” Applied Economics 32(2000):1373–89.10.1080/00036840050151467Google Scholar
Kargbo, J.M. “Impacts of Monetary and Macroeconomic Factors on Food Prices in West Africa.” Agrekon 44(2005):205–24.10.1080/03031853.2005.9523710Google Scholar
Kargbo, J.M. “Forecasting Agricultural Exports and Imports in South Africa.” Applied Economics 39(2007):2069–84.10.1080/00036840600707183Google Scholar
Kliesen, K.L., and Poole, W. “Agriculture Outcomes and Monetary Policy Actions: Kissin' Cousins?” Federal Reserve Bank of St. Louis Review 82(2000):1–12.Google Scholar
Kwiatkowski, D., Phillips, P.C.B., Schmidt, P., and Shin, Y. “Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root.” Journal of Econometrics 54(1992):159–78.10.1016/0304-4076(92)90104-YGoogle Scholar
Lach, S., and Tsiddon, D. “The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data.” The Journal of Political Economy 100(1993):349–89.Google Scholar
Lamoureux, C.G., and Lastrapes, W.D. “Persistence in Variance, Structural Change, and the GARCH Model.” Journal of Business & Economic Statistics 8(1990):225–34.Google Scholar
Lee, H.S., and Siklos, P.L. “Unit Roots and Seasonal Unit Roots in Canadian Macroeconomic Time Series.” Economics Letters 35(1991):273–77.10.1016/0165-1765(91)90143-9Google Scholar
Lee, T.H. “Spread and Volatility in Spot and Forward Exchange Rates.” Journal of International Money and Finance 13(1994):375–83.10.1016/0261-5606(94)90034-5Google Scholar
Leibtag, E. “Corn Prices Near Record High, but What about Food Costs.” Amber Waves. U.S. Department of Agriculture, 11-15, 2008.Google Scholar
Loy, J.P., and Weaver, R.D. “Inflation and Relative Price Volatility in Russian Food Markets.” European Review of Agriculture Economics 25(1998):373–94.10.1093/erae/25.3.373Google Scholar
Maravegias, N. “Economic and Monetary Union and the Agricultural Sector in Greece.” Agenda 2000 and the Agricultural Sector. Athens, Greece: Institute of Agricultural Research, 1997.Google Scholar
McMillan, D.G. “Spot-futures Spread and Volatility: Evidence from Metals Prices.” Derivatives Use, Trading and Regulation 9(2003):32–38.Google Scholar
Meyers, W.H., Helmar, M.D., Devadoss, S., Young, R.E., and Blandford, D. “Macroeconomic Impacts on the U.S. Agricultural Sector: A Quantitative Analysis for 1980-84.” Working Paper 86-WP 17, The Center for Agricultural and Rural Development, Iowa State University, 1986.Google Scholar
Mizon, G.E. “Modelling Relative Price Variability and Aggregate Inflation in the United Kingdom.” The Scandinavian Journal of Economics 93(1991):189–211.10.2307/3440327Google Scholar
Modigliani, F., and Jappelli, T. “The Determinants of Interest Rates in the Italian Economy.” Review of Economic Conditions in Italy 1(1988):9–34.Google Scholar
Nelson, D.B. “Conditional Heteroscedasticity in Asset Returns: A New Approach.” Econometrica 55(1991):703–708.Google Scholar
Orden, D. “Money and Agriculture: The Dynamics of Money-Financial Market-Agricultural Trade Linkages.” Agricultural Economics Research 38(1986):14–28.Google Scholar
Orden, D., and Fackler, P.L. “Identifying Monetary Impacts on Agricultural Prices in VAR Models.” American Journal of Agricultural Economics 71(1989):495–502.10.2307/1241620Google Scholar
Osborn, D.R. “A Survey of Seasonality in UK Macroeconomic Variables.” International Journal of Forecasting 6(1990):327–36.10.1016/0169-2070(90)90060-OGoogle Scholar
Perron, P. “Further Evidence on Breaking Trend Functions in Macroeconomic Variables.” Journal of Econometrics 80(1997):355–85.10.1016/S0304-4076(97)00049-3Google Scholar
Ray, D.E., Richardson, J.W., De la Torre Ugarte, D.G., and Tiller, K.H. “Estimating Price Variability in Agriculture: Implications for Decision Makers.” Journal of Agricultural and Applied Economics 30(1998):21–33.Google Scholar
Roache, S.K. “What Explains the Rise in Food Price Volatility?” IMF Working Paper No. 10/129, 2010.Google Scholar
Sahi, G.S., and Raizada, G. “Commodity Futures Market Efficiency in India and Effects on Inflation.” 2006. Internet site: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=949161.Google Scholar
Saikkonen, P., and Lütkepohl, H. “Testing for the Cointegrating Rank of a VAR Process with Structural Shifts.” Journal of Business & Economic Statistics 18(2000):451–64.Google Scholar
Schuh, G.E. “The International Capital Market as a Source of Instability in International Commodity Markets.” In: Agriculture in a Turbulent World Economy, Proceedings of the Nineteenth International Conference on Agricultural Economics, Maunder, A. and Renborg, U. (eds.). Malaga, Spain, 1986.Google Scholar
Sims, C.A. “Macroeconomics and Reality.” Econometrica 48(1980):1–48.10.2307/1912017Google Scholar
Smith, V.H., and Lapp, J.S. “Relative Price Variability among Agricultural Commodities and Macroeconomic Instability in the United Kingdom.” Agricultural Economics 44(1993):272–83.10.1111/j.1477-9552.1993.tb00271.xGoogle Scholar
Staikouras, S.K. “Testing the Stabilization Hypothesis in the UK Short-term Interest Rates: Evidence from a GARCH-X Model.” The Quarterly Review of Economics and Finance 46(2006):169–89.10.1016/j.qref.2005.04.003Google Scholar
Stockton, D.J. “Relative Price Dispersion, Aggregate Price Movement, and the Natural Rate of Unemployment.” Economic Inquiry 26(1988):1–22.10.1111/j.1465-7295.1988.tb01666.xGoogle Scholar
Taylor, J.S., and Spriggs, J. “Effects of the Monetary Macroeconomy on Canadian Agricultural Prices.” The Canadian Journal of Economics. Revue Canadienne d'Economique 23(1989):1278–89.Google Scholar
Tegene, A. “The Impact of Macrovariables on the Farm Sector: Some Further Evidence.” Southern Journal of Agricultural Economics 22(1990):77–85.Google Scholar
Thompson, W., Meyer, S., and Westhoff, P. “How Does Petroleum Price and Corn Yield Volatility Affect Ethanol Markets with and without an Ethanol Use Mandate?” Energy Policy 37(2009):745–49.10.1016/j.enpol.2008.08.035Google Scholar
Tsay, R. “Conditional Heteroskedastic Time Series Models.” Journal of the American Statistical Association 82(1987):590–604.10.1080/01621459.1987.10478471Google Scholar
Varangis, P.N. “On the Interaction between the Variances of Money Supply, Agricultural Prices and Industrial Prices.” Greek Economic Review 14(1992):129–49.Google Scholar
Von Braun, J., and Torero, M. “Exploring the Price Spike.” Choices (New York, N.Y.) 24(2009):16–21.Google Scholar
Yang, J., Balyeat, B.R., and Leatham, D.J. “Futures Trading Activity and Commodity Cash Price Volatility.” Journal of Business Finance & Accounting 32(2005):297–323.10.1111/j.0306-686X.2005.00595.xGoogle Scholar
Yang, J., Haigh, M.S., and Leatham, D.J. “Agricultural Liberalization Policy and Commodity Price Volatility: A GARCH Application.” Applied Economics Letters 8(2001):593–98.10.1080/13504850010018734Google Scholar
Yu, T.H., Bessler, D.A., and Fuller, S. “Cointegration and Causality Analysis of World Vegetable Oil and Crude Oil Prices.” Paper presented at the American Agricultural Economics Association Annual Meeting, Long Beach, CA, July 23-26, 2006.Google Scholar
Zanias, G.P. “Inflation, Agricultural Prices and Economic Convergence in Greece.” European Review of Agriculture Economics 25(1998):19–29.10.1093/erae/25.1.19Google Scholar