An Economic Concept for Measuring Price Uncertainty: The Case of the World Coffee Market

World markets for agricultural commodities are faced with increasing price fluctuations. When measuring these fluctuations, most researchers have focused on the construction of instabilty indicators not directly related to economic theory. In this article, a concept for measuring price uncertainty is presented that is explicitly based on economic reasoning. The economic meaning of price uncertainty is elaborated theoretically. The extent of price uncertainty is then measured for the world coffee market. An economic market model is used for estimating the deterministic part of the coffee price series. The paper shows that price uncertainty cannot be measured objectively but is dependent on the particular knowledge of the market analyst about the detrministic structure of the market considered.