TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...
TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...
TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...
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Empirical Analysis: Cointegration Models, Structural Breaks and Policy Reform<br />
With the additional outlier model, both for the French and the intervention<br />
price it is not possible to reject the null hypothesis of a unit root with structural<br />
break, occurred in August 1993. If two breaks are allowed, the situation is much<br />
less clear-cut; the 2001:08 break in the intervention price series coincides with the<br />
full implementation of Agenda 2000, but doesn’t correspond to the one in the<br />
French price. Provided that the change caused by the MacSharry reform is very<br />
likely to have had a strong immediate effect rather than a gradual one, as<br />
confirmed by visual inspection of the series, for these two prices the innovational<br />
outlier model, both allowing for one and two breaks, (according to which the<br />
French and the intervention price are both I(0) processes) seems less appropriate,<br />
(and indeed, the time of the break moves backwards to a date which has no<br />
political sense 80 ). For the US price it is possible to reject the unit root null<br />
hypothesis only in the AO model allowing for one break, only. This time the<br />
interpretation of the timing of the structural breaks is not immediate. The Zivot<br />
and Andrews test has been performed, as well (table 6.3). Both the French and the<br />
intervention prices turn out to be I(0) around a broken intercept. Nevertheless,<br />
remembering that the null hypothesis of unit root in this test excludes the presence<br />
of a structural break, and on the basis of the results of standard unit root tests<br />
carried out in the two subsamples identified as before and after the structural<br />
break constituted by the MacSharry reform (which, as recalled before, find<br />
evidence of nonstationarity; annex B), we conclude that the use of this test is not<br />
appropriate for the French and intervention price. For the US price it is not<br />
possible to reject the null hypothesis of a unit root process without structural<br />
break.<br />
Table 6.3 Zivot and Andrews (1992) tests<br />
AIC lagmethod TTest lag method<br />
Lags Time of t stat 5% Lags Time of t stat 5%<br />
the break critical value the break<br />
critical value<br />
swfrt 1 1993:07 -5.702** -4.80 1 1993:07 -5.702** -4.80<br />
pint t 1 1993:06 -6.042** -4.80 0 1993:06 -5.795** -4.80<br />
hrw t 1 1986:01 -4.686 -4.80 1 1986:01 -4.686 -4.80<br />
AIC/TTest lag method: AIC criterion/5% significance of the t-test used for lag selection<br />
***indicates rejection of the null hypothesis at 1%; ** at 5%; * at 10% significance<br />
In order to test for the presence of a unit root in the French price differentiated<br />
series, provided the structural break identified in the French price evidently<br />
80 While, for the French price, this might suggest the hypothesis of some “rational expectations” behaviour of<br />
market operators whose actions anticipate the following reduction in the intervention price, this is actually not<br />
the case since the same occurs for the intervention price, which is the very policy variable.<br />
99