often thought. Alexandratos (2008) concluded that China’s and India’s combined average annual increase in grain consumption was smaller in 2002‐08 than in 1995‐2001. Similar findings have been reported by the European Commission (2015), Alexandratos and Bru‐ insma (2012), Baffes and Haniotis (2010), Sarris (2010), the Food and Agriculture Organiza‐ tion of the United Nations (2009), FAO (2008), Lustig (2008). Deaton and Drèze (2008) noted that in India, despite growing incomes, caloric intake has followed a downward trend since the early 1990s.<sup>**10**</sup> The impact of a rise in the _real interest rate_ is found to be negative but small on the prices of individual commodities, ranging from ‐0.02 for maize to ‐0.06 for soybeans, wheat, and palm oil, and the parameter estimate from the panel regression, ‐0.01, is not statistically different from zero (t‐statistic = ‐1.25). A weak relationship between interest rates and com‐ modity prices is a common finding in the empirical literature. Gilbert (1989) used an error‐ correction model to conclude that high interest rates negatively affect the metal price in‐ dex, though with considerable lags. Baffes (1997), who used a reduced form price model for five metals, estimated an effect that was mostly negative but not significantly different from zero elasticities. Frankel and Rose (2010), based on annual data for a number of commodi‐ ties, found little support for the argument that easy monetary policy and low real interest rates are an important source of upward pressure on real commodity prices. Their finding was confirmed by a subsequent paper (Frankel 2014). Some other studies (e.g., Anzuini and others 2010, Akram 2009) found that interest rates had a moderate effect. Baffes and Savescu (2014) found a positive relationship between nominal interest rates and metals prices and argued that while a lower cost of capital may induce a rightward shift in the demand schedule, it may also induce a rightward shift in the supply schedule due to the lower cost of input financing—thus rendering the relationship between interest rates and commodity prices ambiguous.

We find that a rise in the _real exchange rate_ has a negative effect on prices of indi‐ vidual food commodities. This is consistent with expectations in terms of sign, but it is highly significant only for rice. In the panel regressions, however, the parameter estimate is significantly different from zero (‐0.46, t‐statistic = ‐1.81).<sup>**11**</sup> The large parameter estimate for rice (‐1.44) is consistent with the fact that the United States does not play a significant role in the rice market. The negative relationship between U.S. dollar appreciation and

> price indices and Hochman and others (2011) found that income accounted for almost one third of 2001‐08 food price increases.

> **10** See the recently published briefs by the Directorate‐General for Agriculture and Rural Development of the European Commission (http://ec.europa.eu/agriculture/markets‐and‐prices/index_en.htm) for detailed in‐ formation on developments in demand, supply, and prices of major agricultural commodities during different periods and regions of the world since 1960.

> **11** Given that real prices are expressed in a “currency‐free” unit, it could be argued that the exchange rate will not affect prices. However, this is not necessarily the case because changes in the U.S. exchange rate induce movements in aggregate demand and supply schedules. Thus the significant parameter estimate.

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