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European Review of Agriculture Economics Vol 30 (1) (2003) pp.77-98
© 2003 Oxford University Press and the Foundation for the European Review of Agricultural Economics

Grain price volatility in a small open economy

Maurice J. Roche and Kieran McQuinn

National University of Ireland, Maynooth, Ireland
Rural Economy Research Centre, Teagasc, Dublin, Ireland

Summary

This paper uses a multivariate autoregressive conditional heteroscedasticity model to investigate the effect of British grain prices on their Irish equivalents. We find that in the long run the law of one price holds and in the short run the model captures the salient features of Irish grain prices. The model is used to compute rolling forecasts of the conditional means, variances and covariance of Irish grain prices one year ahead. We find that this model produces superior forecasts compared with those based on a commonly used approach of an autoregressive conditional mean model where the second moments are estimated using a fixed-weight moving average.

Keywords: grain prices, risk, error-correction, multivariate ARCH


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