Dynamics of Food Prices in Pakistan: GARCH Approach

Abstract

Aim of the Study: The purpose of the research is to provide in-depth findings on the dynamics of food prices by computing the volatility in fifteen food commodities for fourteen major cities of Pakistan for the period June 2002 to July 2021. The research identified the commodities with high and low price volatility and also identified the periods in which the volatility in food prices was high and low over the period.

Methodology: Volatility in food prices is computed using standard deviation and the GARCH approach Bollerslev (1986).

Findings: Based on standard deviation, it is found that beef, chicken, egg, sugar and all vegetables are highly volatile over the given period as compared to other commodities. Further, it is elaborated from GARCH results that, in the Cereal and Pulses group, Milk and Tea for most of the cities; both the residual effects and past variance are responsible for the current volatility. While in log return prices of Sugar, Eggs and commodities exist in the vegetable group, the main reason for volatility in most of the cities is only the external factors.

Conclusion: The study would help the policymakers to stabilize the food prices. It is recommended that the government should formulate a system by making investment to monitor the market prices of highly volatile food commodities (beef, chicken, egg, sugar and vegetables) in each city. It would help to stabilize the food prices.