Description: George Fuller Memorial Lecture: Michel Robe (University of Illinois, Urbana-Champaign)

Location: 368A Heady Hall

Contact Person: David Hennessy 

Title: "The Political Economy of Export Bans and Commodity Price Volatility: Theory and Evidence from Agricultural Markets"

Abstract: We show that accounting for political risk helps to explain commodity price dynamics. We propose a simple theoretical model to demonstrate how, over and above the impact of exogenous supply shocks, uncertainty about the future world price of staple foods increases with the likelihood (and is further boosted by the actual im- position) of export bans in top producer countries. To test the model’s insights, we provide the first high-frequency empirical analysis of the impact of such restrictions on commodity world price dynamics. We construct a novel daily dataset of major restrictions on agricultural exports announced, adopted, or repealed in 2002-2019. We use daily option-implied volatilities (IVols) as the proxy for commodity market uncertainty. Our empirical framework allows us to control explicitly for known drivers of commodity market uncertainty, including global macro-economic uncertainty and risk aversion (jointly captured by the VIX) and for spot market tightness (including the state of grain inventories) prior the ban. We show that wheat and corn IVols are significantly higher on the day and the week when a ban is first imposed, and also during the whole period when a ban remains in effect. The increase is statistically and economically significant.

The George A. Fuller Memorial Lecture is provided by a generous gift from George A. Fuller, a native of Muscatine, Iowa, who received a bachelor’s degree in economics from Iowa State University, and a PhD in economics from the University of Iowa. His career included work in the export and transportation industries, time in the Air Force as a flyer and a transportation economist, extensive travel and teaching, and numerous awards. He received a Danforth Fellowship at Harvard and was a Fulbright's lecturer and a visiting professor at the Swedish School of Economics and the Helsinki School of Economics. He taught at the USDA Graduate School, the University of Iowa, UCLA, USC, University of North Carolina, and the University of Utah. He studied economic conditions in Asia, Europe, Africa, and Latin America. Dr. Fuller's career truly spanned the practice and theory of economics.