Do oil price increases cause higher food prices?

Baumeister, Christiane; Kilian, Lutz

doi:10.1111/1468-0327.12039

Cited by 181 publications

(121 citation statements)

References 45 publications

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“…In a review article (Carter, Rausser and Smith, 2011), we show that both the 1973-74 and 2007-08 commodity booms were preceded by unusually high world economic growth, especially in middle-income countries. Baumeister and Kilian (2014) show that corn prices are correlated with the price of oil, but that correlation is largely "driven by common macroeconomic determinants of the prices of oil and of agricultural commodities. "…”

Section: Data: Index Of Real Economic Activity (Rea)mentioning

confidence: 99%

Commodity Storage and the Market Effects of Biofuel Policies

Carter

Rausser

Smith

2016

American J Agri Economics

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US legislation passed in 2007 (RFS2) increased by about 1.3 billion bushels the net amount of corn required to be processed annually into ethanol for motor-fuel use. Using modern time-series methods, we estimate that corn prices were about 30 percent higher between 2006 and 2014 than they would have been but for RFS2 and if pre-2006 trends had continued. We estimate a permanent corn demand increase of 1.3 billion bushels increased the long-run price by 31% (90% confidence interval is [5%,95%]). Our identification strategy is unique in the literature because it enables estimation of the effects of transitory shocks, such as weather, separately from the effects of persistent shocks, such as the ethanol mandate. Keywords:Ethanol; agriculture; energy policy; VAR; partial identification The difference between the RFS2 and RFS mandates is approximately 5.5 billion gallons (bgal) of ethanol annually in the years 2010-2012, which corresponds to about 1.3 billion bushels of corn after accounting for feed by-products. We take these 1.3 billion bushels as the permanent increase in corn demand in the RFS2, and we estimate that it caused a 31 percent long-run increase in corn prices.Interpreting our estimates correctly requires a precise statement about counterfactual ethanol production. In our counterfactual, ethanol production would have increased from its actual 2005 value of 3.9bgal to 8.8bgal in 2014. This path represents a continuation of the trend observed between 2002 and 2005 and is slightly below the path predicted by the USDA in early 2006. We argue it is a reasonable counterfactual path in the absence of the RFS2. We also point that our long-run estimate is scalable. To estimate the effect of increasing corn demand permanently by any multiple of 1.3 billion bushels, a reader could multiply our estimate by that multiple.Previous studies have also found that the increase in corn-ethanol production affected corn We focus our analysis on commodity inventory dynamics, which distinguishes our work from the extant literature. This approach enables us to estimate the price effects of persistent shocks to supply or demand separately from the effects of transitory shocks in a market for a storable commodity. This distinction is important in our context because persistent shocks have larger price effects than transitory shocks. The market can respond to a transitory shock, such as poor growing season weather, by drawing down inventory. This action mitigates the price effect. A persistent shock, such as an increase in current and expected future demand, cannot be mitigated by drawing down inventory.To identify these two types of shocks, we exploit their differential effects on inventory levels and on the term structure of futures prices. For example, all else equal, a sudden increase in this year's consumption demand reduces available inventories and raises spot prices relative to futures prices. This is a transitory shock. In contrast, a predicted increase in next year's consumption demand generates an increase in i...

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Section: Data: Index Of Real Economic Activity (Rea)mentioning

confidence: 99%

Commodity Storage and the Market Effects of Biofuel Policies

Carter

Rausser

Smith

2016

American J Agri Economics

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“…In line with at least one previous study, the estimated pass-through into the idiosyncratic component is not statistically different from zero (c.f. Baumeister and Kilian, 2014), while the pass-through via the common component is very similar to that for core PCE price inflation.…”

Section: Oil Price Pass-throughmentioning

confidence: 71%

“…However, while there is clear evidence that the pass-through from oil prices to energy prices is relatively fast and complete (Burdette and Zyren, 2003;Meyler, 2009), though it is still to be determined whether it is symmetric or not (Venditti, 2013;Atil et al, 2014;Chesnes, 2016), it is unclear to what degree changes in oil prices pass-through into non-energy prices (Kilian and Lewis, 2011;Kilian, 2014).…”

Section: Introductionmentioning

confidence: 99%

Oil Price Pass-Through into Core Inflation

Conflitti

Luciani

2017

FEDS

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We estimate the oil price pass-through into consumer prices both in the US and in the euro area. In particular, we disentangle the specific effect that an oil price change might have on each disaggregate price, from the effect on all prices that an oil price change might have since it affects the whole economy. To do so, we first estimate a Dynamic Factor Model on a panel of disaggregate price indicators, and then we use VAR techniques to estimate the pass-through. Our results show that the oil price passes through core inflation only via its effect on the whole economy. This pass-through is estimated to be small, but statistically different from zero and long lasting.JEL classification: C32, E31, E32, Q43.

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“…Some other observers are claiming that oil prices have reflected food prices. A general perception between academics and policymakers is that oil prices increase have been related with the higher food prices.The difference between retail food prices and prices received by former through crops is more important (Baumeister & Kilian, 2013).No major influence of food and oil prices. Although there is a wide facts of encouraging association involving both of them (Alom, Ward, & Hu, 2011).…”

Section: IImentioning

confidence: 99%

“…Higher inflation is the outcome of increase in the growth rate in the money supply (Jones & Manuellib, 1995).The investmentstock affected by the inflation.Through the mixture of inflation tariff and tax on capital income the administration have to finance a permanent stream of expenditures. when inflation rate increase it means there is reduction in tax on capital income (Jones & Manuellib, 1995).some Asian countries use different energy production and oil CPI Specifications in order to calculate the of oil prices together inflation and economic growth rate (Cunado, 2005).If the price of the product do not reverse to their preceding level then the temporary inflationary create (Cecchetti & Moessner, 2008).The policy makers makes the policies about a global food shortage and about inflationary pressures (Baumeister & Kilian, 2013).Inflation increase in 1970s (Martin, 2009). Raise in food price and rise in inflationis the result of increase in energy power.…”

Section: IImentioning

confidence: 99%