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Abstract
This article contributes to the ongoing discussion on the drivers of food price
volatility. Based on theoretical considerations, economical, agricultural, and political
determinants of domestic price volatility are identified and discussed. A dynamic panel
is estimated to account for country fixed effects and persistence of volatility. Two
approaches are followed in order to consistently estimate the impact of time-invariant
variables. First, system GMM using levels instead of first differences and, second, a
two-step IV estimation using the residuals from the system GMM estimation. Findings
suggest that stocks, production, international price volatility, and governance significantly
affect domestic price variability. Furthermore, improved functionality of markets
and reduced transaction costs can stabilise prices. With respect to agricultural policies,
public stockholding seems to be associated with less volatility, whereas trade restrictions
do not enhance price stabilisation. Lastly, landlocked countries experience less
variability in grain prices, while African countries have more volatile prices than
countries on other continents.