Macroeconomic Effects of Disruptions in Global Food Commodity Markets: Evidence for the United States

Abstract

We use two approaches to examine the macroeconomic consequences for the United States of disruptions in global food commodity markets. First, we embed a novel quarterly composite global production index for the four basic staples—corn, wheat, rice, and soybeans—in a standard vector autoregression model, and we estimate the dynamic effects of global food commodity supply shocks on the U.S. economy. As an alternative, we also estimate the consequences of 13 narratively identified global food commodity price shocks. Both approaches lead to similar conclusions. Specifically, an unfavorable food commodity market shock raises food commodity prices, and leads to a rise in food, energy, and core inflation, and also to a persistent decline in real GDP and consumer expenditures. A closer inspection of the pass-through reveals that households do not only reduce food consumption. In fact, there is a much greater decline in durable consumption and investment. Overall, the macroeconomic effects turn out to be a multiple of the maximum impact implied by the share of food commodities in the consumer price index and household consumption.