The impact of the world food price index on some East-European economies
Abstract
This paper deals with the dynamic response of exchange rates, inflation and agricultural foreign trade in Bulgaria, Poland and Romania to global food prices. We employ time-varying VARs with stochastic volatility to estimate the behaviour of these macroeconomic variables over the 2001M1–2015M12 period. The original contribution of this paper is that it captures the time variation and nonlinearities of the relationship between variables taking into account food price volatility and its macroeconomic implications. The main findings of the paper are: (i) high global food prices were transmitted to domestic economies causing pressure on inflation in the long run; (ii) in the short run the impact of a positive shock in international food price increases domestic inflation, depreci-ates the currency and reduces the agricultural trade; (iii) the vulnerabilities to global food prices are more pregnant for Romania and Bulgaria; (iv) the difference in the transmission of world prices is related to the different status of the countries as regards food and agricultural trade. The findings of the research would be significant for the governments to promote policies to help farmers respond to the rising of food prices by growing more and responding to export opportunities that may arise.
Keyword : food prices, inflation, world food price pass-through, agricultural trade, Bayesian time-varying VARs, stochastic volatility, exchange rate pass-through
How to Cite
Saman, C., & Alexandri, C. (2018). The impact of the world food price index on some East-European economies. Journal of Business Economics and Management, 19(2), 268-287. https://doi.org/10.3846/jbem.2018.5208
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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OECD. (2008). Responses to inflation shocks: Do G7 countries behave differently?. OECD Economic Outlook. Paris: OECD. Retrieved from https://www.oecd.org/eco/monetary/41719698.pdf
Pain, N., Koske, I., & Sollie, M. (2006). Globalisation and inflation in the OECD economies (Working Papers No. 524). OECD Economics Department.
Peersman, G. (2005). What caused the early millennium slowdown? Evidence based on vector autoregressions. Journal of Applied Econometrics, 20, 185-207. https://doi.org/10.1002/jae.832
Primiceri, G. (2005). Time varying structural vector autoregressions and monetary policy. Review of Economic Studies, 72(3), 821-852. https://doi.org/10.1111/j.1467-937X.2005.00353.x
Saman, C. (2016). The impact of the US and euro area financial systemic stress to the Romanian economy. Romanian Journal of Economic Forecasting, 19(4), 170-183.
Sekine, T. (2006). Time-varying exchange rate pass-through: experiences of some industrial countries (BIS Working Papers No. 524). Bank for International Settlements.
Sims, C. A. (2001). Comment on Sargent and Cogley’s evolving post world war II US inflation dynamics. NBER Macroeconomics Annual, 16, 373-379. https://doi.org/10.2307/2527347
Swinnen, J. (2011). The right price of food. Development Policy Review, 29(6), 667-688. https://doi.org/10.1111/j.1467-7679.2011.00552.x
Uhlig, H. (2005). What are the effects of monetary policy on output? Results from an agnostic identification procedure. Journal of Monetary Economics, 52(2), 381-419. https://doi.org/10.1016/j.jmoneco.2004.05.007
von Braun, J., & Tadesse, G. (2012). Global food price volatility and spikes: an overview of costs, causes, and solutions (ZEF Discussion Papers on Development Policy No. 161). Bonn.
World Bank. (2012). Global Monitoring Report 2012. Food prices, nutrition, and the millennium development goals. Washington, DC: IMF. Retrieved from http://www.imf.org/external/pubs/ft/gmr/2012/eng/gmr.pdf
Benati, L., & Mumtaz, H. (2007). U.S. evolving macroeconomic dynamics a structural investigation (Working Paper No. 746). European Central Bank.
Blake, A., & Mumtaz, H. (2012). Applied Bayesian econometrics for central bankers. Bank of England.Campa, J. M., & Goldberg, L. (2005). Exchange rate pass-through into import prices. Review of Economics and Statistics, 87(4), 679-690. https://doi.org/10.1162/003465305775098189
Campa, J. M., & Goldberg, L. (2008). Pass-through of exchange rates to consumption prices: what has changed and why?. In T. Ito & A. K. Rose (Eds.), International financial issues in the pacific rim: global imbalances, financial liberalization, and exchange rate policy (NBER-EASE Vol. 17). Chicago, IL: University of Chicago Press.
Canova, F., & De Nicoló, G. (2002). Monetary disturbances matter for business fluctuations in the G-7. Journal of Monetary Economics, 49(6), 1131-1159. https://doi.org/10.1016/S0304-3932(02)00145-9
De Walque, G., Jeanfils, P., Lejeune, T., Rychalovska, Y., & Wouters, R. (2017). An estimated two-country EA-US model with limited exchange rate pass-through (Working Paper No. 317). National Bank of Belgium.
De Walque, G., Smets, F., & Wouters, R. (2005). An open economy DSGE model linking euro area and the US economy. National Bank of Belgium. Retrieved from https://www.bankofcanada.ca/wp-content/uploads/2010/08/walque_pre.pdf
Del Negro, M., & Schorfheide, F. (2004). Priors from general equilibrium models for VARS. International Economic Review, 45(2), 643-673. https://doi.org/10.1111/j.1468-2354.2004.00139.x
EC, DG-Agri. (2008). High prices on agricultural commodity markets: situation and prospects − a review of causes of high prices and outlook for world agricultural markets. Report of the Directorate L. Economic analysis, perspectives and evaluations, L. 5. Agricultural trade policy analysis.
FAO, IFAD, IMF, OECD, UNCTAD, WFP, the World Bank, the WTO, IFPRI and the UN HLTF. (2011). Price volatility in food and agricultural markets: policy responses. Retrieved from http://www.oecd.org/tad/agricultural-trade/48152638.pdf
FAO. (2003). Trade reforms and food security: conceptualizing the linkages. Rome. Retrieved from http://www.fao.org/3/a-y4671e.pdf
Gagnon, J., & Ihrig, J. (2004). Monetary policy and exchange rate pass-through. International Journal of Finance and Economics, 9(4), 315-338. https://doi.org/10.1002/ijfe.253
Galesi, A., & Lombardi, M. J. (2009). External shocks and international inflation linkages: a global VAR analysis (Working Paper No. 1062). European Central Bank.
Gelos, G., & Ustyugova, Y. (2017). Inflation responses to commodity price shocks − how and why do countries differ?. Journal of International Money and Finance, 72, 28-47. https://doi.org/10.1016/j.jimonfin.2016.10.001
Gust, C., & Sheets, N. (2006, January). The adjustment of global external imbalances: Does partial pass-through to trade prices matter? (International Finance Discussion Papers No. 850). Washington, DC: Board of Governors of the Federal Reserve System.
Headey, D., & Fan, F. (2008). Anatomy of a crisis: the causes and consequences of surging food prices. Agricultural Economics, 39(S1), 375-391. https://doi.org/10.1111/j.1574-0862.2008.00345.x
Ianchovichina, E., Loening, J., & Wood, C. (2012). How vulnerable are Arab countries to global food price shocks? (Policy Research Working Paper No. 6018). The World Bank.International Monetary Fund. (2011a). Commodity price swings batter most vulnerable in poorest countries. IMF survey magazine: countries & regions. Retrieved from https://www.imf.org/en/News/Articles/2015/09/28/04/53/socar092311a
International Monetary Fund. (2011b, September). Target what you can hit: commodity price swings and monetary policy. World Economic Outlook. Washington, DC: IMF Washington, DC World Bank.
Kalkuhl, M. (2016). How strong do global commodity prices influence domestic food prices in developing countries? A global price transmission and vulnerability mapping analysis. In M. Kalkuhl, J. von Braun & M. Torero (Eds.), Food price volatility and its implications for food security and policy. London, UK: Springer.
McCarthy, J. (2000). Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies (Staff Reports No. 111). Federal Reserve Bank of New York.
McFarlane, L. (2009). Time-varying exchange rate pass-through: an examination of four emerging market economies. Bank of Jamaica. Retrieved from http://www.cemla.org/red/papers2009/JAMAICA-McFarlane.pdf
Nakajima, J. (2011). Time-varying parameter VAR model with stochastic volatility: an overview of methodology and empirical applications (Discussion Paper Series 2011-E-9). Institute for Monetary and Economic Studies.
OECD. (2008). Responses to inflation shocks: Do G7 countries behave differently?. OECD Economic Outlook. Paris: OECD. Retrieved from https://www.oecd.org/eco/monetary/41719698.pdf
Pain, N., Koske, I., & Sollie, M. (2006). Globalisation and inflation in the OECD economies (Working Papers No. 524). OECD Economics Department.
Peersman, G. (2005). What caused the early millennium slowdown? Evidence based on vector autoregressions. Journal of Applied Econometrics, 20, 185-207. https://doi.org/10.1002/jae.832
Primiceri, G. (2005). Time varying structural vector autoregressions and monetary policy. Review of Economic Studies, 72(3), 821-852. https://doi.org/10.1111/j.1467-937X.2005.00353.x
Saman, C. (2016). The impact of the US and euro area financial systemic stress to the Romanian economy. Romanian Journal of Economic Forecasting, 19(4), 170-183.
Sekine, T. (2006). Time-varying exchange rate pass-through: experiences of some industrial countries (BIS Working Papers No. 524). Bank for International Settlements.
Sims, C. A. (2001). Comment on Sargent and Cogley’s evolving post world war II US inflation dynamics. NBER Macroeconomics Annual, 16, 373-379. https://doi.org/10.2307/2527347
Swinnen, J. (2011). The right price of food. Development Policy Review, 29(6), 667-688. https://doi.org/10.1111/j.1467-7679.2011.00552.x
Uhlig, H. (2005). What are the effects of monetary policy on output? Results from an agnostic identification procedure. Journal of Monetary Economics, 52(2), 381-419. https://doi.org/10.1016/j.jmoneco.2004.05.007
von Braun, J., & Tadesse, G. (2012). Global food price volatility and spikes: an overview of costs, causes, and solutions (ZEF Discussion Papers on Development Policy No. 161). Bonn.
World Bank. (2012). Global Monitoring Report 2012. Food prices, nutrition, and the millennium development goals. Washington, DC: IMF. Retrieved from http://www.imf.org/external/pubs/ft/gmr/2012/eng/gmr.pdf