Advances and Applications in Statistics
Volume 55, Issue 2, Pages 157 - 174
(April 2019) http://dx.doi.org/10.17654/AS055020157 |
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ON THE DEPENDENCY OF FOOD PRICE AND PRODUCTION: AN IRANIAN MODERN TIME VARYING COPULA-BASED ANALYSIS
Neda Sedghi, Reza Moghaddasi, Saeed Yazdani and Seyed Safdar Hosseini
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Abstract: To formulate and implement the most efficient agricultural policies, it is in the best interest of policy makers to investigate the association of agricultural price and production. Wheat as a major food ingredient plays a vital role in meeting Iranian households’ energy needs. As a result, government has followed support policies (especially guaranteed price) targeting self-sufficiency in wheat production for more than three decades. This paper tries to model the association of wheat price and quantity growth rates allowing evaluation of relevant policies’ effectiveness. Different specifications of copula model, as a modern statistical approach in studying dependency of random variables, are estimated using time series data on wheat production and price for the period spanning from 1975 to 2014. Main findings prove existence of negative tail dependence between two variables. The time-varying Gumbel copula was the best specification among several copula candidates. The negative dependence between the growth rates of food (wheat) production and food (wheat) price was found, as expected. The dependency, and hence, Kendall’s tau, were found to be time-varying. This finding can be used to predict the next period’s dependence and Kendall’s tau correlation, and help policy makers become aware of what is likely to happen in the future. Policy makers are encouraged to use these methods to better prepare measures for managing food inflation and affordability. |
Keywords and phrases: GARCH, time varying copula, wheat price, wheat production, dependence, Iran.
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