Global food price and monetary policy : evidence from oil-importing and oil-exporting countries : a thesis written in fulfilment of the requirements for the program of Master of Agribusiness at Massey University, Palmerston North, New Zealand

Abstract

This study examines food price vulnerability in the case of oil-importing countries of Singapore and Vietnam and oil-exporting countries of Kuwait and Indonesia. The study is further extended to address the response of domestic food inflation to a sudden shock of a change in global food price, global oil price and monetary policy. Applying the Autoregressive Distributed Lag method to cointegration and Vector Error Correction Model, the relationship between domestic food inflation and macroeconomic variables is analysed using monthly data over the period 2004-2019. Two following key methodologies to measure the volatility of domestic food inflation are applied GARCH and GARCH-ARMA models. The impulse response of domestic food inflation to the monetary shocks is based on the Vector Autoregression. The findings indicate that there exist long-run relationships between domestic food price of four countries and a set of macroeconomic variables. However, there is different impacts of macroeconomic factors, i.e., GDP per capita, the real money supply, the real effective exchange rate, industrial production, global food price and global oil price on food inflation in each case of four countries. The findings also indicate the potential impacts of short-run deviations between domestic food inflation and macroeconomic variables, as well as the behaviour of food price vulnerability in the four sample countries. Given the vital role of macroeconomic factors and global food price in controlling domestic food price volatility, the estimated findings provide various appropriate implications for monetary policies to deal with the issues of stabilising food inflation. The related issue of global financial crisis impacts on economic growth and domestic food inflation is considered of 2007-2008 using the structural break analysis based on monthly data for the period 2004 to 2019. The results show that food price volatility happens during the period of global financial crisis. This study also indicates the important role of monetary policy on reducing food price vulnerability, especially in the case of emerging economies. The findings of the study provide a number of policy implications for policy- makers as well as for the behaviour of the producers and consumers. There are a series of comparisons in the investigating the sources of variations in domestic food price in four sample countries. Thus, the findings are highly important for the future course of food price because it relies on different structural economies and macroeconomic environment.