• Thaneshwar Bhandari Department of Agricultural Economics and Agriculture Extension Institute of Agriculture and Animal Science, Lamjung Campus, Tribhuvan University, Nepal
Keywords: ADF, cointegration, ECT, instability, pass-through, unit root, and, VECM


The study was synthesized to investigate the backdrop of long-run and short-run dynamics of the food price instability factors in Neplease food market. Using secondary data between January 2000 to the April 2013, the study used Johansen's cointegration test (JCT) and Vector Error Correction Model (VECM) to examine the effect of: world rice price (WRP), Indian common rice (IRP), official exchange rate (OER), crude oil price (COP), and national petrolium retail price (FRP) on domestic rice price, especially course rice (CRP) and medium rice price (MRP). The study fulfilled all the preconditions of JCT by conducting DF, ADF, Q- test, Breusch-Godfrey LM, and D-W test for identifying unit root, autocorrilation, spurious regression and normality test values. JCT results showed that CRP was cointeragted CI ≈ (1,0) in first order with WRP, IRP, FRP, COP and OER. Similarly, the medium rice price (MRP) was also cointegrated with the WRP, IRP, FRP, and OER in 1st order (CI ≈ (1,0) ). These evidences confirmed that WRPt, COPt, IRPt, and OERt were major factors of price instability in a longrun. The dynamic of short-run relationships were tested by running Johansen's Cointegrating Vector Error Correction Model (VECM). However, results proved that no any long-run speed of adjustment to
be corrected each month for reaching long-run equilibrium steady state position. Unlike it, the model quantified short-run coefficient of lncourset-1, and lncrudeoilt-1 had effect on course rice while lnmediumt-2 (L2D), lnmediumt-1 (LD), and lnoert-1 had significant effect on MRP

How to Cite
Bhandari, T. (2015). FACTORS AFFECTING FOOD PRICE INSTABILITIES IN NEPAL. The Journal of University Grants Commission, 4(1), 19-38. Retrieved from http://jugc.edu.np/index.php/JUGC/article/view/55