Does Public Stockholding Reduce Market Price Volatility? A Quantile Autoregression Approach To Indian Wheat Market

This paper investigates the effect of public stockholding on commodity price dynamics and volatility with an application to Indian wheat market. The analysis is based on reduced form representation of price dynamics and relies on quantile autoregression (QAR) approach. The QAR provides flexible representation of effect of stocking policy on price dynamics including mean, variance, skewness and kurtosis. This paper is of significant interest as it deals with the world’s largest public stockpiling and distribution programme for agricultural commodities. The analysis shows that public stock has significant price effects, however, theses effect varies across the quantiles. There is strong statistical evidence of public stock effecting the price dynamics and volatility. For instance, increasing public stock level tends to shift the price distribution to the left. Analysing the effect of public stock on price dynamics further reveals that price exhibits dynamic stability throughout. Nevertheless, root tends to be smaller with increase in stock level in the upper tail of distribution