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Analysis of maize price volatility and price pass-through in Swaziland: Implications for price stabilization policies

 

Mphumuzi Sukati

 

Research Article | Published March 2017

Journal of Economics and International Business Management, Vol. 5(1), pp. 1-13.

 

African Union Inter-African Bureau for Animal Resources (AU-IBAR), P.O Box 30786, Nairobi, Kenya.

 

*Corresponding author. E-mail: mphumuzi@hotmail.com

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This paper investigates maize price volatility in Swaziland as offered by National Maize Corporation (NMC), an organization with a mandate of stabilising maize prices in the country. NMC is the sole importer and main trader of maize in Swaziland. The study further scrutinizes the price stabilising abilities of the organisation using price pass-through from the South African maize market where Swaziland imports most of its maize deficit. Price volatility is analysed using Autoregressive Conditional Heteroskedasticity/The generalized autoregressive conditional heteroskedasticity (ARCH/GARCH) modelling techniques while price pass-through is analysed using Vector Error Correction Model (VECM) cointegration methods. Results show that NMC prices exhibit spiky volatility even though this volatility is not persistent, given the insignificant GARCH short-run dynamics which is also supported by stationary of the prices. However, NMC prices react intensely to market dynamics with significant ARCH and GARCH effects. The reaction to market dynamics is basically as a result of high price pass through of almost 96% from the South African market to the local maize market. This is not surprising given the strong link between the two maize markets both in terms of Swaziland sourcing production inputs from South Africa and importing in cases of production deficit, which happen every year and has been increasing in recent years due to poor maize output in the country. No asymmetry effects on the maize price movements are detected meaning that our model simply reverts to the standard GARCH specification. This finding is reasonable in that NMC is ideally not for profit organization and will not have the sell effect when prices rise.

 

Keywords: Prices volatility, ARCH/GARCH, cointegration, VECM.

 

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Citation:
Sukati M (2017). Analysis of maize price volatility and price pass-through in Swaziland: Implications for price stabilization policies. J. Econ. Int. Bus. Manage. 5(1): 1-13.
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