Estimating Volatility in Prices of Pulses in India: An Application of Garch Model

Abstract

Although, India is the largest pulse producing country in the world, the production of these crops in the country has shown sluggish growth over the years. Low growth rate coupled with high fluctuations in production of pulses is mainly responsible for poor performance of pulse sector. It also leads to high price variability. Variability in the prices of pulses is a major concern for decision makers. This study was conducted to estimate the volatility in the prices of major pulses (chickpea, pigeonpea, blackgram, greengram and lentil) in India using GARCH model. Results have shown that the volatility in the current period depends on volatility in the preceding period in case of pulses as evident from the significant ARCH term for all the crops. Further, the sum of α and β coefficients has been found more than one for all the pulse crops except pigeonpea in period I thus indicating an explosive price series with a tendency to meander away from mean value. The volatility in the price series of pigeonpea has been found more persistent and explosive in recent period. So, there is a need for regular monitoring of prices and appropriate interventions by the government, when necessary, to make the development of pulse sector more sustainable.