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Commodity Food Prices: Review and Empirics

DOI: 10.1155/2013/694507

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The present paper provides a literature review of studies examining the potential causes and consequences of recent surges in food and agricultural commodity prices. Furthermore, this paper uses the structural trend methodology proposed by Koopman et al. (2009) to analyze movements in the IMF monthly commodity food price index for the period 1992(11)–2012(10) and to provide forecasts for the period 2012(11)–2014(12). The empirical results indicate that commodity food prices present seasonality and cyclicality with the longest periodicity of two years. The empirical findings identify certain structural breaks in commodity food price series as well as outliers. These structural breaks seem to capture the trend component of the price series well, while the outliers take account of temporal effects, that is, short-lived spikes. Finally, the presented forecasts show high and volatile commodity food prices. 1. Introduction Commodity food prices have surged upwards in dramatic fashion in recent years after several decades of relative stability and low levels. In particular, commodity food prices increased dramatically between late 2006 and mid-2008, and by reaching high levels later on (i.e., during 2010, early 2011, and the third quarter of 2012), they caused serious concerns about a repeat of the 2006–2008 food crisis. This phenomenon has motivated several analyses of the factors that have caused commodity food prices to increase in recent years. The purpose of the present paper is twofold. First, it reviews the empirical studies that identify and analyze the possible causes of the recent food and agricultural commodity spikes. Second, it uses a structural time series approach to analyze the behavior of the monthly commodity food price index for the past 20 years. In the empirical part, the present paper departs from previous detrending methods and employs a structural time series approach [1], which provides the possibility of discovering commodity price cycles. Furthermore, this approach permits not only the possibility of stochastic cycles but also the presence of stochastic trends in levels and growth rates and provides efficient forecasts on the commodity food price index. The remainder of this paper is organized as follows. Section 2 presents and discusses the literature on the causes of commodity food price increases in recent years. In Section 2.1, specific discussion is devoted to the possible linkages between fuel and food prices, while in Section 2.2 the possible relation between speculation and food prices is provided. Section 3 presents the

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