How to Understand High Food Prices |
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| Authors: | Christopher L Gilbert |
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| Institution: | Christopher L. Gilbert is in the Department of Economics, University of Trento, Italy. E‐mail: . An initial version of this paper was prepared for an FAO Group of Experts meeting on High Food Prices, Rome, 9–10 July 2008. Revised versions of the paper were presented at la Bicocca, Milan, Wye College, the 2009 ICABR Conference, Italy and the University of Nottingham. I am grateful to the editor, Don Mitchell, Simone Pfuderer, members of the FAO Group of Experts, seminar and conference participants and three anonymous referees for comments on earlier versions of the paper. |
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| Abstract: | Agricultural price booms are better explained by common factors than by market‐specific factors such as supply shocks. A capital asset pricing model‐type model shows why one should expect this and Granger causality analysis establishes the role of demand growth, monetary expansion and exchange rate movements in explaining price movements over the period since 1971. The demand for grains and oilseeds as biofuel feedstocks has been cited as the main cause of the price rise, but there is little direct evidence for this contention. Instead, index‐based investment in agricultural futures markets is seen as the major channel through which macroeconomic and monetary factors generated the 2007–2008 food price rises. |
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| Keywords: | Biofuels commodity prices exchange rates food prices futures markets money Q11 |
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