An Empirical Study On The Conduction Effects Of Chinese And International Food Price Volatility

Grain price fluctuation affects a country or region’s food security. "Low prices for grain hurt the peasants" and "high prices for grain hurt the people". Studies on the conduction or spillover effects of grain price fluctuation between different markets are of great importance for ensuring food security. With the great change of the international grain trade pattern in China, the conduction problem of domestic and international grain price fluctuation has aroused widespread concern. Since entering WTO, China has become a net soybean importer from a net soybean exporter. On the contrary, the rice market still maintains a self-sufficient and self-contained state, however the import has shown a rising trend in recent two years. The associated problem is the increased risk of grain price fluctuation, and the efficiency of government’s regulation on the grain market is directly related to the level of food security in China. On the other hand, with the intensification of the process of global economic integration, the opening of grain market also attracts the attention of scholars and causes much fierce debate. Therefore, it is of important theoretical and practical significance to study the price fluctuation in the domestic and international grain market.The conduction mechanism of domestic and international grain prices was summarized firstly. Based on the trade channel, financial market channel and source channel, the pathway of the price fluctuation in the domestic and international grain market was analyzed and the theoretical basis was described. And then the characteristic of the price fluctuation was analyzed. The study found that the grain price fluctuation shows a clustering effect at home and abroad. Based on the above two points and combined with the reality of the opening degree of China’s soybean and rice markets, three hypotheses were put forward and a model to verify these hypotheses was set up. Through the cointegration analysis, a long-term equilibrium relationship was found between domestic and international grain prices. The mean equation was then set to a VAR/VECM model and a long-term equilibrium relationship was found, but a short term grain price fluctuation was also found. Through the establishment of BEKK and DCC models, the conductivity and degeneration of the grain price fluctuation at home and abroad were analyzed. Finally, according to the empirical results and through the comparative analysis, the opened grain market, such as the soybean market, has a strong conductivity, degeneration and anti-risk ability, while the relatively closed grain market has a weak conductivity and degeneration and a relatively strong anti-risk ability. And these three hypotheses were verified.Based on the above results, different regulation mechanisms of different channels on the grain price fluctuation were put forward to minimize the threats from the grain market’s opening over China’s food security and ensure the food security under the opening of China’s grain market.