Food Price Pass-Through in the Euro Area: Non-Linearities and the Role of the Common Agricultural Policy
by Gianluigi Ferruccia, Rebeca Jiménez-Rodríguezb, and Luca Onorantea a
In this paper we analyze the pass-through of a commodity
price shock along the food price chain in the euro area.
Departing from the existing literature, which focuses on food
commodity prices as quoted in international markets, we use
a novel database that accounts for the role of the Common
Agricultural Policy in the European Union. We model several
departures from the linear pass-through benchmark and compare
alternative specifications with aggregate and disaggregate
data. Overall, when the appropriate data set and methodology
are used, it is possible to identify a significant and long-lasting
pass-through. The results of our regressions are applied to the
food price shock in the 2007–08 period; a decomposition exercise
shows that commodity prices are the main determinant of
the increase in producer and consumer prices, thus solving the
puzzle highlighted in the existing literature for the euro area.
JEL Codes: C32, C53, E3, Q17.
(PDF, 39 pages 735 kb)
Discussion by Tsutomu Watanabe
a European Central Bank
b University of Salamanca