Food Price Volatility and Macroeconomic Factors: Evidence from GARCH and GARCH-X Estimates
14 Pages Posted: 11 Jun 2007 Last revised: 26 Apr 2015
Date Written: February 1, 2011
This paper examines the process of relative food price volatility and investigates how short-run deviations from the relationship between relative food prices and particular macroeconomic fundamentals affect this volatility for the case of Greece. The methodology followed in this paper to measure relative food price volatility is that of Generalized Autoregressive Conditional Heteroskedastic (GARCH) and GARCH-X models. The latter model allows the link between short-run deviations from a long-run cointegrated relationship and volatility. The results from a GARCH-X(1, 1) model showed that a significant and positive effect is imposed by the deviations on the volatility of relative food prices. These findings imply that the forecasting business of relative food prices is expected to become a harder task.
Keywords: relative food prices, volatility, macroeconomic fundamentals, GARCH and GARCH-X models
JEL Classification: E60, Q10, Q19
Suggested Citation: Suggested Citation