TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

Empirical Analysis: Cointegration Models, Structural Breaks and Policy Reform
as the two dummies largely overlap, this might explain why β5 , the coefficient of
the dummy associated to the MacSharry reform, gets a negative sign. For this
reason, the model is estimated without export taxes (table 6.6). This time, all the
coefficients of the cointegration vector have the expected sign (for β5, the same
consideration made for the previous model holds). Both adjustment coefficients
have the expected sign. Once again, the US price performs as weakly exogenous.
Table 6.6 VECM with structural breaks: EU and WTO policy regimes, 2001/02 campaign
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
104
∆swfrt ∆hrwt Cointegration vector
-0.067***
0.048
(0.012)
(0.043)
-0.185***
(0.058)
0.198
(0.213)
β0 -4.066***
(0.310)
0.248***
(0.060)
0.334
(0.219)
β1 -0.203***
(0.062)
0.255***
(0.060)
-0.416*
(0.218)
β2 0.163**
(0.044)
0.175***
(0.062)
0.010
(0.225)
β3 1.072
(0.740)
0.025
(0.018)
0.311***
(0.064)
β4 -0.190
(0.150)
-0.046**
(0.018)
-0.078
(0.067)
β5 -0.154**
(0.062)
0.001
(0.018)
0.042
(0.067)
β8 0.380***
(0.079)
-0.066***
0.025
(0.018)
(0.065)
LM 1.554 (p value 0.074) 0.564 (p value 0.922) β1 + β4 = -1 χ 2 ARCH
(5)
13.525 (pvalue 0.019) 13.519 (p value 0.019)
= 15.920 (p-value 0)
β 2,β3, β4, β5, β6, β7 = 0
χ 2 = 33.485 (p-value 0)
SBIC -7.910 HQN -8.508
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
Since this third model presents better information criteria than the one
presented in table 6.5, this last one is preferred. The null hypothesis of a perfect
price transmission elasticity after the URAA implementation cannot be accepted.
The long run residuals of the model (figure 6.1; EC 1 dotted line, left-hand scale)
show a stationary behaviour around zero. These long run residuals from the
cointegration relation in which structural breaks are included are compared with
the series called residuals = ( swfrt - 0.203 * hrwt ) (figure 6.1; residuals;
unbroken line, right-hand scale), obtained just subtracting from the French price
the US one multiplied by its overall transmission parameter. This series is of
course higher in magnitude, as the constant term is missing, and is reported to