Price Dynamics and Volatility Spill-Over Effects in Farm-Retail Price Relationships of Chicken and Pork, 1990-2013

Maritess D. Villanueva, Cleo S. Villanueva

Abstract


Linkages between farm and retail prices of meat commodities are of considerable economic interest. This time-series study investigates causality using Granger causation, cointegration and volatility spillover effects (“heat waves” and “meteor shower” effects) between producer and consumer prices of chicken and pork markets in the Philippines, employing the methodology of the Generalized Autoregressive Conditional Heteroscedastic (GARCH). GARCH model estimation was done using 18-years monthly data (January 1990 to December 2007) for each commodity understudy. Sixty-six monthly observations (January 2008 to June 2013) were utilized in forecasting to test the formulated models. Findings indicate that consumer prices are riskier than the producer prices which imply that commodity markets faced by the Philippine producers are low-return and low-risk ones. Chicken prices were supply driven. There is an interdependence between the producer and the consumer prices for the pork category. Moreover, it was found that the consumer price volatility of chicken affects, and is affected by its producer price volatility.

Keywords


stationarity, Granger-causality, cointegration, bivariate GARCH, price volatility spill-over effects, meteor shower effect, heat waves effect

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