Bangladesh Bank Training Academy Journal

Abstract

This study examines the volatility dynamics of food inflation in Bangladesh using Generalized Autoregressive Conditional Heteroskedasticity (GARCH) and its variants (EGARCH, TGARCH, and IGARCH) to capture the influence of past shocks, volatility persistence, and asymmetric responses. The analysis utilizes Consumer Price Index (CPI) data for food and its subgroups. The findings reveal significant heterogeneity in volatility behavior across commodities. Overall, food price volatility shows both significant persistence and asymmetry, where negative shocks reduce volatility more than positive shocks. The results highlight the strong persistence of price volatility in many food subgroups and the asymmetric response of prices to shocks, where price increases lead to higher volatility compared to price decreases. This has important implications for policy, particularly for inflation management and food security, as volatility disproportionately affects lower-income households. The study suggests targeted interventions to stabilize prices and improve supply chain efficiency, alongside long-term strategies for sustainable agricultural practices. The findings contribute to the broader discourse on economic stability and food price dynamics in Bangladesh.The estimated volatility along with the threshold effect (if any) will help to confirm the active intervention by the authority in the food markets to prevent unusual food price hikes.