Does Speculation Matters for Wheat Price Shocks?

Gökhan Çinar,Ayşe Uzmay,Adnan Hushmat

doi:10.4236/tel.2015.54061

Gökhan Çinar, Ayşe Uzmay + Show 1 more

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https://doi.org/10.4236/tel.2015.54061

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Abstract

The purpose of this research is to study the relation between wheat price shocks and speculative movements. VAR model is developed to analyze the data. Impulse-Response functions and Variance Decomposition method are used to analyze the size of relationship among the variables. Wheat prices are effected significantly by speculative movements in the short-run. The relation loses its significance after three months. The effect of speculation on wheat prices can lead to negative reaction from the producers; that will be harmful for an economy as a whole. In order to prevent this, effective use of the government policies is needed; so that, in the long-run, not only economic but also speculative based price structure can be achieved. The disclosures of global wheat yield estimated by the authorities can be a helpful tool in order to control speculative movements and in achieving long-run market equilibrium. This study encompasses a bigger picture and provides an opportunity to have a deeper and broader look into the dynamics of wheat prices. Thus, it can be advantageous for traders as well as for policy makers.

Highlights

The dynamics of commodity prices is among the important risk factors effecting inflation in an economy
This study analyzes the relation between wheat price shocks and speculative movements
The findings show that the speculative movements effect wheat prices in short-run significantly

Summary

Introduction

The dynamics of commodity prices is among the important risk factors effecting inflation in an economy. Explaining these dynamics is important for an economy. Price volatilities evolving in these dynamics, under certain limits, are important for a smooth working of an economy. If these volatilities go beyond certain limits, the consumers and producers and the whole economy is effected. High volatility in the economy increases uncertainty in the prices and leads to market manipulation. An example of high volatility in the

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