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Agricultural commodity markets : reference point for the real value of a currency

McFarlane, I. (2014) Agricultural commodity markets : reference point for the real value of a currency. Modern Economy, 5 (5). pp. 533-540. ISSN 2152-7261

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To link to this item DOI: 10.4236/me.2014.55050

Abstract/Summary

Using monthly time-series data 1999-2013, the paper shows that markets for agricultural commodities provide a yardstick for real purchasing power, and thus a reference point for the real value of fiat currencies. The daily need for each adult to consume about 2800 food calories is universal; data from FAO food balance sheets confirm that the world basket of food consumed daily is non-volatile in comparison to the volatility of currency exchange rates, and so the replacement cost of food consumed provides a consistent indicator of economic value. Food commodities are storable for short periods, but ultimately perishable, and this exerts continual pressure for markets to clear in the short term; moreover, food calories can be obtained from a very large range of foodstuffs, and so most households are able to use arbitrage to select a near optimal weighting of quantities purchased. The paper proposes an original method to enable a standard of value to be established, definable in physical units on the basis of actual worldwide consumption of food goods, with an illustration of the method.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Life Sciences > School of Agriculture, Policy and Development > Biodiversity, Crops and Agroecosystems Division > Crops Research Group
ID Code:36793
Uncontrolled Keywords:Agriculture, Commodity, Currency, Econometrics, Volatility
Publisher:Scientific Research Publishing Inc.

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