Impact of Price Volatility of Agriculture Commodities vs Food in Case of Pakistan

Abstract

This study focuses on nature as well as the volatility of price determinants in Pakistan. The aim of this study is to investigate the causes of agriculture commodities and food products in Pakistan for selected commodities data ranging from June 1983 to June 2018. Data were collected from different sources including IMF (International Monetary Fund), World Bank, IFS (International Financial Statistics) as well as SBP (State Bank of Pakistan). The GARCH (1, 1) models was used to estimate all variables by using standard normal and student's t-distribution. Further, to explore the dynamics of conditional volatility for agriculture commodities vs food products prices and explain the diffusion between both products. Results of the study concluded that the volatility effect and mean of both interest plus exchange rate affects the selected commodities overall. Further, the volatility of wheat price significantly affects the price series of the rice. On the other hand, poultry prices do not affect the mean prices of beef as well as other products. It has been noted that prices significantly impact the current prices of most of the commodities, excluding oil as well as cotton. For future, it is recommended to motivate that hedging instruments to be used for the reduction of price volatility by the farmers.