A Study On International Grain Price Volatility Based On VAR Model

According to Hongchun Zhao (2012), international grain price volatility can bedivided into three categories: grain supply impact, aggregate supply impact of global rawmaterial and preventive grain demand impact.The main model and methodology of this paper are from an article written byHongchun Zhao (2012). This paper also adopts its innovative global economic activityindex called shipping rate to measure global economic activity. We imply discriminativestudy on volatility and time lag of above three structural impacts to observe the degree ofinfluence, affect path of the real grain price, and their relationships with real grain price,from1980to2010. Grain research data is from the weighted average data of rice, wheatand corn. This paper focuses on the real price volatility of grain market, differentiate truereason of grain price volatility, and analyze its impact on Chinese grain market andChina’s economy. For the measure of China’s economy, we use CPI and real GDP ofChina. Compared with total supply impact of global raw material and preventive graindemand impact, grain supply impact has little influence on true international grain pricefrom1980to2010.Impact on China’s economy: supply impact and preventive grain demand impactwill boost the rise of CPI, but these impacts only become statistically significant in thethird year after the shock occurred. Aggregate demand impact has no significant influenceon price level. Preventive demand impacts have incremental stimulation on output, andaggregate demand impact has long-lasting effect on output. These differences are mainlydue to the impact of the different nature of the food has different dynamic characteristics.Besides, the paper has put a detailed analysis on policies, regulations and internationalexchange rate changes which played key roles in the development of China’s grain marketduring the last30years to contrast with empirical results. This give some input byproviding a modest theoretical contribution to make China’s grain market morecompetitive in the international grain market under the trend of globalization andintegration.