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Journal ArticleDOI

Factors affecting recent food price inflation in the United States

TL;DR: The authors decompose the path of domestic food prices into explanatory factors, grouped by supply or demand orientation, and find that demand-side factors have a stronger correlation with recent food price increases than they have, historically.
Abstract: Beginning in mid-2021, U.S. food prices surged at the fastest pace in decades, due to pandemic-related supply chain and labor shortages, rising transportation costs and wages, food commodity and fertilizer shocks resulting from Russia's invasion of Ukraine, and perhaps demand-side effects of recent monetary and fiscal stimulus. We decompose the path of domestic food prices into explanatory factors, grouped by supply or demand orientation. Our findings indicate that although supply-side factors explain most of the observed price changes, the demand-side factors we studied—particularly the money supply—have a stronger correlation with recent food price increases than they have, historically.
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Posted Content
TL;DR: In this paper, a structural decomposition of the real price of crude oil in four components is proposed: oil supply shocks driven by political events in OPEC countries; other oil supply shock; aggregate shocks to the demand for industrial commodities; and demand shocks that are specific to the crude oil market.
Abstract: Using a newly developed measure of global real economic activity, a structural decomposition of the real price of crude oil in four components is proposed: oil supply shocks driven by political events in OPEC countries; other oil supply shocks; aggregate shocks to the demand for industrial commodities; and demand shocks that are specific to the crude oil market. The latter shock is designed to capture shifts in the price of oil driven by higher precautionary demand associated with concerns about the availability of future oil supplies. The paper quantifies the magnitude and timing of these shocks, their dynamic effects on the real price of oil and their relative importance in determining the real price of oil during 1975-2005. The analysis also sheds light on the origins of the major oil price shocks since 1979. Distinguishing between the sources of higher oil prices is shown to be crucial for assessing the effect of higher oil prices on U.S. real GDP and CPI inflation. It is shown that policies aimed at dealing with higher oil prices must take careful account of the origins of higher oil prices. The paper also quantifies the extent to which the macroeconomic performance of the U.S. since the mid-1970s has been determined by the external economic shocks driving the real price of oil as opposed to domestic economic factors and policies.

2,951 citations

Journal ArticleDOI
TL;DR: In this article, a structural decomposition of the real price of crude oil is proposed, based on a newly developed measure of global real economic activity, and the authors estimate the dynamic effects of these shocks on the real prices of oil.
Abstract: Using a newly developed measure of global real economic activity, a structural decomposition of the real price of crude oil into three components is proposed: crude oil supply shocks; shocks to the global demand for all industrial commodities; and demand shocks that are specific to the crude oil market. The latter shock is designed to capture shifts in the price of oil driven by higher precautionary demand associated with concerns about future oil supply shortfalls. The paper estimates the dynamic effects of these shocks on the real price of oil. A historical decomposition sheds light on the causes of the major oil price shocks since 1975. The implications of higher oil prices for U.S. real GDP and CPI inflation are shown to depend on the cause of the oil price increase. Changes in the composition of shocks help explain why regressions of macroeconomic aggregates on oil prices tend to be unstable. Evidence that the recent increase in crude oil prices was driven primarily by global aggregate demand shocks helps explain why this oil price shock so far has failed to cause a major recession in the U.S.

2,670 citations

Journal ArticleDOI
TL;DR: The authors proposed to estimate the effects of monetary policy shocks by a new agnostic method, imposing sign restrictions on the impulse responses of prices, nonborrowed reserves and the federal funds rate in response to a monetary policy shock.

2,058 citations

Journal ArticleDOI
TL;DR: In this article, the authors introduce methods to compute impulse responses without specification and estimation of the underlying multivariate dynamic system by estimating local projections at each period of interest rather than extrapolating into increasingly distant horizons from a given model, as it is done with VARs.
Abstract: This paper introduces methods to compute impulse responses without specification and estimation of the underlying multivariate dynamic system The central idea consists in estimating local projections at each period of interest rather than extrapolating into increasingly distant horizons from a given model, as it is done with vector autoregressions (VAR) The advantages of local projections are numerous: (1) they can be estimated by simple regression techniques with standard regression packages; (2) they are more robust to misspecification; (3) joint or point-wise analytic inference is simple; and (4) they easily accommodate experimentation with highly non-linear and flexible specifications that may be impractical in a multivariate context Therefore, these methods are a natural alternative to estimating impulse responses from VARs Monte Carlo evidence and an application to a simple, closed-economy, new-Keynesian model clarify these numerous advantages

1,761 citations

Posted Content
TL;DR: In this paper, the authors interpret fluctuations in GNP and unemployment as due to two types of disturbances: disturbances that have a permanent effect on output and disturbances that do not, and they find that demand disturbances have a hump shaped effect on both output and unemployment; the effect peaks after a year and vanishes after two to five years.
Abstract: We interpret fluctuations in GNP and unemployment as due to two types of disturbances: disturbances that have a permanent effect on output and disturbances that do not. We interpret the first as supply disturbances, the second as demand disturbances. We find that demand disturbances have a hump shaped effect on both output and unemployment; the effect peaks after a year and vanishes after two to five years. Up to a scale factor, the dynamic effect on unemployment of demand disturbances is a mirror image of that on output. The effect of supply disturbances on output increases steadily over time, to reach a peak after two years and a plateau after five years. 'Favorab1e supply disturbances may initially increase unemployment. This is followed by a decline in unemployment, with a slow return over time to its original value. While this dynamic characterization is fairly sharp, the data are not as specific as to the relative contributions of demand and supply disturbances to output fluctuations. We find that the time series of demand-determined output fluctuations has peaks and troughs which coincide with most of the NBER troughs and peaks. But variance decompositions of output at various horizons giving the respective contributions of supply and demand disturbances are not precisely estimated. For instance, at a forecast horizon of four quarters, we find that, under alternative assumptions, the contribution of demand disturbances ranges from 40 to over 95 per cent.(This abstract was borrowed from another version of this item.)

885 citations

Trending Questions (3)
How do factors such as climate change, transportation costs, and labor shortages impact the price increase of vegetables?

The paper does not specifically mention the impact of climate change, transportation costs, and labor shortages on the price increase of vegetables. The paper focuses on factors such as pandemic-related supply chain and labor shortages, rising transportation costs and wages, food commodity and fertilizer shocks resulting from Russia's invasion of Ukraine, and demand-side effects of recent monetary and fiscal stimulus.

Why is food inflation an important topic to study?

Food inflation is an important topic to study because it helps understand the factors that contribute to rising food prices, such as supply chain disruptions, labor shortages, and monetary and fiscal stimulus.

What are the factors that are driving the increasing price of food?

The factors driving the increasing price of food in the United States include pandemic-related supply chain and labor shortages, rising transportation costs and wages, food commodity and fertilizer shocks resulting from Russia's invasion of Ukraine, and demand-side effects of recent monetary and fiscal stimulus.