Testing for Exuberance Behavior in Agricultural Commodities of Pakistan

Fatima, Hira and Ahmed, Mumtaz (2019): Testing for Exuberance Behavior in Agricultural Commodities of Pakistan.

Abstract

One of the basic aims of the sustainable development goals is to reduce poverty, hunger and malnutrition across the globe. It is believed that commodity booms have severe impacts on developing countries where households spend large share of their disposable income on food. Thus, hitting the poor’s ability buy necessities such as food and energy. Pakistan being a developing economy has a large share of its exports that depends on the agriculture sector in which price is the main determinant and plays a key role. In last decade, an increasing trend has been observed in agricultural commodity prices leading to food insecurity, poverty and inflation in the economy. Thus, it is essential to figure out the price bubbles in the agriculture sector. In this regard, present study is preliminary in nature and takes a lead in addressing this important issue and finds out the bubbles in agricultural commodity prices of Pakistan. The empirical analysis is carried out by employing recently developed state of art GSADF approach developed by Phillips et al. (2015) and making use of monthly data of seven key agricultural commodities in Pakistan spanning over the period of 18 years (2000M1 to 2018M5). The findings suggest the occurrence of bubbles in all price series with some interesting facts. Some relevant policy recommendations are discussed as well.

• Item Type: MPRA Paper
• Language: English
• Keywords: Multiple Bubbles; GSADF; Monte-Carlo Simulations; Unit Root
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q14 - Agricultural Finance; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q18 - Agricultural Policy ; Food Policy

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