Estimation and decomposition of food price inflation risk

Research output: Contribution to journalArticle

Abstract

Ensuring aggregate food price stability requires a forward-looking assessment of the risk that unexpected deviations in individual food items’ inflation lead to large shocks in the aggregate food price inflation. To do so, we propose using a multivariate GARCH framework in combination with the Euler method to (1) estimate the conditional standard deviation and quantiles of the food price inflation shocks and (2) attribute the total risk to the underlying food items. For the FAO food price index, we find that even though meat inflation systematically has the highest weight in the aggregate index, cereal inflation is the main contributor to the total food price inflation risk over the period 1990–2018. The use of time series models and the Cornish-Fisher expansion make the risk characterization forward-looking and a potentially helpful tool for risk management.
Original languageEnglish
Pages (from-to)1-25
Number of pages25
JournalStatistical Methods & Applications
Volume2021
DOIs
Publication statusPublished - 10 Jun 2021

Keywords

  • Component risk contribution
  • Food inflation
  • Time-varying risk
  • MGARCH

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