Mean Reversion in Agricultural Commodity Prices in India

Abstract

This paper deals with the analysis of several commodity prices in India using an approach based on fractional integration and focusing on the degree of persistence of the series. We examine seven agricultural prices: rice, wheat, maize, bajra, jowar, black gram and arhar. The results can be summarized as follows: in five of the series examined (rice, wheat, maize, bajra and jowar) we find evidence of mean reversion with the effect of the shocks disappearing in the long run. On the contrary, in two of the series (black gram and arhar) we cannot reject the null of a unit root with the implication that shocks have a permanent nature. Thus, in the event of a negative shock, strong measures must be adopted in these two series since the effect of the shocks will persist forever.