TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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Empirical Analysis: Cointegration Models, Structural Breaks and Policy Reform In the first VECM estimates, based on policy considerations (see paragraph 4.2.2), three basic structural breaks are imposed: the implementation of the MacSharry reform in 1993:07, which we expect had the effect of lowering the French price, due to the reduction of intervention prices (dummy variable reg1t = 1 if t ≥ 1993:07, and 0 otherwise); the implementation of the URAA in 1995:07, which, if tariffication was effectively in place, should have increased price transmission elasticities. For this reason, both the dummy reg2t = 1 if t ≥ 1995:07, and 0 otherwise, and the interaction term reg2hrwt = hrwt * reg2t are introduced in the cointegration vector; Agenda 2000 reform, that also set the lowering of intervention prices (reg3t = 1 if t ≥ 2000:07, and 0 otherwise). By inserting these regime dummies and the interaction term, the cointegration vector becomes (assuming it is normalized with respect to the French price): [ swfr β hrw β reg β reg2 β reg2hrw β reg3 ] t 0 1 t 2 1t 3 t 4 t 5 β (6.2) Based on the effects that the various policy regime changes are likely to have had, we can make some assumptions concerning the expected sign of the parameters; we expect: β0 < 0, i.e., a positive constant term in the cointegration relationship; β1 < 0 and, presumably, -1 ≤ β1 < 0, i.e., overall, a positive price transmission elasticity between the US and the EU price, which might be at the most equal to 1 (perfect price transmission); β2 , β5 > 0, since both the implementation of the MacSharry reform and of Agenda 2000 are expected to have lowered the French price; β4 < 0 (and, possibly, │β4 + β1│≤ 1), since we expect the URAA to have increased the value of the price transmission elasticity, at maximum up to the value of 1 (perfect price transmission) after the URAA. Estimates are reported in table 6.4. In the cointegration vector β1 = -0.250 and β4 = -0.314; this means that, after the URAA implementation, the price transmission elasticity between the two prices has increased up to the value of 0.564. As expected, β2, β3, β5 > 0; this means that the constant of the cointegration relation between the French and the US price decreased (most likely, as the French price decreased following the implementation of the MacSharry and of Agenda 2000 reforms), from 3.835 to 3.671 (i.e., 3.835-0.164) after the Mac Sharry reform, to 2.009 (3.835-0.164- 1.662) after the URAA implementation, and to 1.918 (3.835-0.164-1.662-0.091) after Agenda 2000. t 101
Empirical Analysis: Cointegration Models, Structural Breaks and Policy Reform α ∆swfr t-1 ∆swfr t-2 ∆swfr t-3 ∆swfr t-4 ∆hrw t-1 ∆hrw t-2 ∆hrw t-3 ∆hrw t-4 102 Table 6.4 VECM with structural breaks: EU and WTO policy regimes ∆swfrt ∆hrwt Cointegration vector -0.044*** 0.142*** (0.014) (0.047) -0.109* (0.060) 0.080 (0.202) β0 -3.835*** (0.347) 0.308*** (0.060) 0.255 (0.203) β1 -0.250*** (0.069) 0.281*** (0.062) -0.518** (0.208) β2 0.164** (0.049) 0.195*** (0.064) -0.064 (0.216) β3 1.662 (0.819) 0.023 (0.018) 0.334*** (0.062) β4 -0.314 (0.166) -0.053*** (0.019) -0.038 (0.065) β5 0.091 (0.049) -0.004 0.057 (0.019) (0.065) -0.066*** 0.047 (0.019) (0.063) LM 2.249 (p-value 0.003) 0.717 (p-value 0.792) β 1 + β 4 = -1 χ 2 = 2.318 (p-value 0.128) ARCH(5) 11.628 (p-value 0.040) 12.381(p-value 0.030) β 2,β 3,β 4,β 5 = 0 χ 2 = 14.525 (p-value 0.006) SBIC -8.146 HQN -8.595 Standard errors in parenthesis. *significant at 10%; **significant at 5%; *** significant at 1% for the null hypothesis of zero coefficients LM: LM test with null hypothesis of no-autocorrelation up to the 18 th lag. ARCH(5): LM test with the null hypothesis of no ARCH effects up to the 5 th lag. SBIC : Schwartz's Bayesian Information criterion. HQN: Hannan-Quinn Information criterion Both the French and the US adjustment coefficients (α) are significant and have the right sign: both prices respond to the disequilibria from the long-run relation where structural breaks have been taken into account. Interestingly, the US coefficient is higher in absolute value. This means that, being both adjustment coefficients significant, although none of the price is weakly exogenous, the US price responds more quickly to the disequilibria from the long run relation than the French price. However, the French price equation still displays autocorrelation, which indicates evidence of misspecification in the model.Indeed, within the simple model which has been presented, some additional factors can be considered (see paragraph 4.2.2), which also define specific policy regimes, although shorter in time, that have affected price transmission. First of all, we introduce export taxes, that have been imposed for very short periods of time (t1t =1 if 1984:08 ≤ t ≤ 1985:04 and zero otherwise; t2t =1 if 1995:12 ≤ t ≤ 1996:09 and zero otherwise), and the inflow of Russian and Ukrainian grains (ut = 1 if 2001:07 ≤ t ≤ 2002:12 and zero otherwise). Introducing these additional factors, the cointegration vector becomes:
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TESTING INTERNATIONAL PRICE TRANSMI
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Associazione “Alessandro Bartola
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Index 1 INTRODUCTION ..............
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1 INTRODUCTION The notion of “pri
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Introduction These recent phenomena
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Introduction Whereas the Common Agr
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Price Transmission and the Law of O
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3 EMPIRICAL TESTS FOR SPATIAL PRICE
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Empirical Tests for Spatial Price A
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= β 2 i0 Empirical Tests for Spati
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∆p + t ∑ ⎡β⎤ ' ⎡ p t =
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Page 52 and 53: Empirical Tests for Spatial Price A
Page 54 and 55: 4 INTERNATIONAL SOFT WHEAT MARKETS
Page 56 and 57: International Soft Wheat Markets Un
Page 58 and 59: 30.000 20.000 10.000 0 1961 1963 19
Page 70 and 71: 250 200 150 100 50 1978:12 Internat
Page 76 and 77: 5 EMPIRICAL ANALYSIS: COINTEGRATION
Page 78 and 79: Empirical Analysis: Cointegration M
Page 82 and 83: α LM test ARCH(13) Empirical Analy
Page 96 and 97: 6 EMPIRICAL ANALYSIS: COINTEGRATION
Page 110: Empirical Analysis: Cointegration M
Page 113 and 114: Concluding Remarks These models rep
Page 116 and 117: REFERENCES Alderman, H., 1992. Inte
Page 118 and 119: References agricultural policies: s
Page 120 and 121: References Isard, P., 1977. How far
Page 122: References Thompson, S. R., Sul, D.
Page 125 and 126: Annexes 124 Annex A - Empirical ana
Page 127 and 128: Annexes METHODOLOGY DATA USED MAJOR
Page 139 and 140: Annexes Variable swfr 138 Annex B -
Page 141 and 142: Annexes Variable swfr 140 Table B.3
Page 143 and 144: Annexes 142 Table B.7 - Unit root t
Page 145 and 146: Annexes 144 Table C.5 - Cointegrati
Page 147 and 148: Annexes 146 Table D.4 - Unit root t
Page 149 and 150: Annexes 148 Annex E - Unit root tes
Page 151 and 152: Annexes Table E.5 - Unit root tests
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The notion of “price transmission
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