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Onal and Aksoy
domestic consumer prices or GDP deflators, using the same method as for the international prices. All prices are annual.
Transmission of International Price Volatility to Producers The volatility measure used in this section is computed as the average of the absolute value of the residual price over the mean for a given series. The difference of this measure from standard deviation is that the latter gives more weight to the tails of the residual distribution.3 A simple look at the nominal world commodity prices in U.S. dollars, from 1990 until 2008, shows that among the five commodities in our sample, coffee (the robusta variety in particular) is the most volatile (see figure 2.1). After two coffee varieties, cotton is the second most volatile commodity in the sample, followed by tea, cashew, and tobacco. In analyzing transmission of nominal international price volatility to domestic producers, we disaggregate the transmission mechanism into two components. The difference between the nominal world price volatility in U.S. dollars and the volatility of world prices in real LCUs reflects the effects of real exchange rate movements vis-รก-vis the U.S. dollar. If the
Figure 2.1 Sample Commodity World Prices Current U.S. dollar, 2002 = 100 450 2002 = 100 400 350
index
300 250 200 150 100 50
91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08
19
19
90
0
year robusta tea Source: GEM 2010.
arabica cashew
cotton tobacco