Abstract
This paper deals with the dynamic response of exchange rates, inflation and agricultural foreign trade in Bulgaria, Poland and Romania to global food prices. We employ time-varying VARs with stochastic volatility to estimate the behaviour of these macroeconomic variables over the 2001M1–2015M12 period. The original contribution of this paper is that it captures the time variation and nonlinearities of the relationship between variables taking into account food price volatility and its macroeconomic implications. The main findings of the paper are: (i) high global food prices were transmitted to domestic economies causing pressure on inflation in the long run; (ii) in the short run the impact of a positive shock in international food price increases domestic inflation, depreci-ates the currency and reduces the agricultural trade; (iii) the vulnerabilities to global food prices are more pregnant for Romania and Bulgaria; (iv) the difference in the transmission of world prices is related to the different status of the countries as regards food and agricultural trade. The findings of the research would be significant for the governments to promote policies to help farmers respond to the rising of food prices by growing more and responding to export opportunities that may arise.
Highlights
The idea that open economies and free trade reduce food insecurity has lost ground in the last years because countries seems to be vulnerable to world food price shocks
The main findings of the paper are: (i) high global food prices were transmitted to domestic economies causing pressure on inflation in the long run; (ii) in the short run the impact of a positive shock in international food price increases domestic inflation, depreciates the currency and reduces the agricultural trade; (iii) the vulnerabilities to global food prices are more pregnant for Romania and Bulgaria; (iv) the difference in the transmission of world prices is related to the different status of the countries as regards food and agricultural trade
This study employs a multivariate time-varying model with stochastic volatility to analyze the macroeconomic impact of global food prices on exchange rates, inflation and agricultural trade in Bulgaria, Poland and Romania
Summary
The idea that open economies and free trade reduce food insecurity has lost ground in the last years because countries seems to be vulnerable to world food price shocks. World prices of the main agricultural products (mainly cereals, rice and oilseeds) practically doubled in the 2006−2008 period, and increased again between 2011 and 2012, and they have not returned to their pre-crisis level These movements were reflected in food prices and caused food insecurity in developing and emerging economies. –– Changes in the macro-economic environment, caused by population and income growth; surge in crude oil prices; increase in demand for grains for biofuels; currency developments, mainly the US dollar depreciation in the 2006−2008 period, and activities on the commodity exchange markets These factors have influenced both the agricultural products supply and demand. Our study is based on the idea that open economies and free trade reduce food insecurity lost ground in the last years because countries seem to be vulnerable to world food price shocks This is an important issue that governments have faced after the 2006−2008 food price crisis. We have tried to evaluate the effects of the agricultural price crisis on specific macroeconomic indicators in Romania, Bulgaria and Poland: exchange rate, inflation rate and foreign trade
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