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Published in:
Methods to Analyse Agricultural Commodity Price Volatility Read chapter Read first chapter

2011 | OriginalPaper | Chapter

10. Price Transmission and Volatility Spillovers in Food Markets of Developing Countries

Authors : George Rapsomanikis, Harriet Mugera

Published in: Methods to Analyse Agricultural Commodity Price Volatility

Publisher: Springer New York

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Abstract

We use a bivariate Vector Error Correction model to assess the transmission of price signals from selected international food markets to developing countries. We introduce a Generalized Conditional Autoregressive Heteroscedasticity (GARCH) effect for the model’s innovations in order to assess volatility spillover between the world and domestic food markets of Ethiopia, India and Malawi. Our results point out that short-run adjustment to world price changes is incomplete in Ethiopia and Malawi, while volatility spillovers are significant only during periods of extreme world market volatility. The problem in these countries is one of extreme volatility due to domestic, rather than world market shocks. In India, the analysis supports relatively rapid adjustment and dampened volatility spillovers which are by large determined by domestic policies.

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previous chapter Price Co-movements in International Markets and Their Impacts on Price Dynamics
next chapter Global Food Commodity Price Volatility and Developing Country Import Risks
Footnotes
1
Forecast error variance decomposition for the domestic price yields the contribution of the variance of international prices to the domestic prices and the part of the variance that is purely attributable to shocks in the domestic price.
 
2
The bi-directional Granger causality between the Indian and world prices does not allow meaningful forecast error variance decomposition.
 
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Metadata
Title
Price Transmission and Volatility Spillovers in Food Markets of Developing Countries
Authors
George Rapsomanikis
Harriet Mugera
Copyright Year
2011
Publisher
Springer New York
Book
Methods to Analyse Agricultural Commodity Price Volatility

Print ISBN: 978-1-4419-7633-8

Electronic ISBN: 978-1-4419-7634-5

Copyright Year: 2011

DOI
https://doi.org/10.1007/978-1-4419-7634-5_10