Price Volatility of Cayenne Pepper and Red Chili Pepper in Papua and Maluku Provinces, Indonesia
Journal Title: Scholars Journal of Economics, Business and Management - Year 2017, Vol 4, Issue 9
Abstract
Abstract:Chili is a strategic vegetable commodity in Indonesia, especially for the cayenne pepper and red chili pepper. One of the factors contributing to the price of chili increased year by year due to the high demand of chili which the Indonesian people love and become an identity as cuisine culture of spicy distinctive. In 2010, chili was one of the top three commodities causing inflation. The chili price usually spiked quite high toward the end the year of until the beginning of the year to reach more than Rp100,000.00/kg, while at a certain price can fall below Rp10,000.00/kg. The varied and random fluctuations of chili contribute to the high volatility of prices in the market, so the price of chili is difficult to predict. This is the reason for price volatility will be a concern in recent years. Volatility refers to variations in economic variables over time. Volatility is not determined by the price level, but the level of price variations on the market. This study used the Autoregressive Conditional Heteroscedasticity (ARCH) and Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model to test the price volatility and suitability as forecasting model of cayenne pepper and red chili pepper in Papua and Maluku provinces so as to know the magnitude of future volatility on producer and consumer prices with time series data which is monthly data from January 2008 to December 2015. Then analyze the price correlation between cayenne pepper and red chili pepper in both provinces to provide an additional picture in recognizing the relationship of both commodities. The results showed that the volatility appeared only on producer prices for cayenne pepper and red chili pepper in both provinces with low volatility level. The market operation (with the reference price) conducted by the government through Ministry of Trade is quite effective in suppressing price uncertainty for the consumer market, as evidenced by no case of observation that has experienced price volatility of cayenne pepper and red chili pepper in both provinces for next period in 2016. In the other side, price correlation between cayenne pepper and red chili pepper on the producer market for Maluku province show a significant correlation. Furthermore, the correlation is supported a negative and high relationship. Conversely for the producer market in Papua Province and also the consumer markets in Papua and Maluku Provinces shows no significant relationship. Keywords:Chili Market, Future Volatility, Pearson Correlation, Reference Price
Authors and Affiliations
Jhon Chen Van, Wen-Chi Huang, Ratya Anindita, Wen-I Chang, Shang-Ho Yang
Keywords
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