Volatility analysis: causation impacts in retrospect (2007-2011) and preparing for the future

Price volatility in agricultural markets is still an important matter in the discussion at both the political and the scientific level. Starting from the food price crisis of 2007/08, not only the observation of increasing price levels but also their increased volatility on key markets (most notably grains) has triggered many studies both at the conceptual and at the empirical level. Policy makers have responded, too; policies for stabilising producer and consumer prices have experienced a revival in the discussions surrounding the Common Agricultural Policy reforms, and concerns about the impact of insufficient regulation for derivatives markets with relevance in agriculture have played a role in the ongoing reform process of the EU's financial market regulation. Despite this focus on agricultural price volatility, there has not yet been reached a full consensus about the question which drivers were shaping price volatility in agricultural markets over the past years. We provide a thorough analysis of agricultural price volatility for 15 different markets of global importance, grouped into five commodity groups which were formed on the basis of the expected interdependence between the markets. Monthly price volatility is estimated for each product using a standardized GARCH framework. In order to address a broad picture regarding the impact of exogenous drivers and the relevant price volatility spillovers, we employ in a second stage a vector-autoregressive (VAR) model for the estimated volatilities for each of the five groups.

Bernhard Brümmer, Olaf Korn, Kristina Schlüßler, Tinoush Jamali Jaghdani Georg-August-Universität Göttingen, Department of Agricultural Economics and Rural Development - ULYSSES project, EU 7th Framework Programme