Volume 4, Issue 5, October 2018, Page: 79-88
Structural Vector Autoregressive (SVAR) Analysis of Maize Prices and Extreme Weather Shocks
Samuel Waiguru Muriuki, Department of Statistics and Actuarial Sciences, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Joseph Kyalo Mung’atu, Department of Statistics and Actuarial Sciences, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Antony Gichuhi Waititu, Department of Statistics and Actuarial Sciences, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Received: Sep. 18, 2018;       Accepted: Oct. 16, 2018;       Published: Nov. 16, 2018
DOI: 10.11648/j.ijdsa.20180405.12      View  116      Downloads  12
Abstract
Food prices have experienced enormous movements and volatility in the recent past which can be predominantly attributed to climate change. Extreme weather events such as drought, flooding and heat waves have adverse effects on agricultural production in areas where agriculture is weather reliant. Among the extreme weather events experienced in Kenya is a drought in 2008/09 which led to a record increase in food prices. It is against this backdrop that this study sought to investigate the dynamic relationship between maize prices and extreme agro-climatic indicators. The study uses structural vector autoregressive (SVAR) tools; Granger causality, Impulse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) to examine the dynamic relationship between extreme weather indicators (minimum and maximum temperature and precipitation) and wholesale maize prices. Using different lag length determinant criterion, reduced-form VAR (2) is highlighted as the best model to fit the study data past weather and maize prices information over a data period spanning from January 2000 and December 2016. The study established that there exists granger causality between maize prices and weather variables. Agro-climatic indicators are therefore significant in predicting future maize prices. Principally, this significance can be inferred from the reliance of local agricultural production on phenological patterns. Maize price shocks exhibited inflationary effects on future maize prices, while a shock in weather variables has depreciating effects after three months. With regard to forecast variance, 30-39% of maize price variations resulted from its own shocks. The rest is attributed to precipitation (29-39%); maximum temperature (24-26%); and minimum temperature (7-8%).
Keywords
Structural Vector Autoregressive (SVAR), Granger Causality, Forecast Error Variance Decomposition (FEVD), Impulse Response Function (IRF)
To cite this article
Samuel Waiguru Muriuki, Joseph Kyalo Mung’atu, Antony Gichuhi Waititu, Structural Vector Autoregressive (SVAR) Analysis of Maize Prices and Extreme Weather Shocks, International Journal of Data Science and Analysis. Vol. 4, No. 5, 2018, pp. 79-88. doi: 10.11648/j.ijdsa.20180405.12
Copyright
Copyright © 2018 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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