TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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Empirical Analysis: Cointegration Models, Structural Breaks and Policy Reform show how the residuals from the overall cointegration relation have a constant which changes over time, in correspondence to structural breaks. In particular, the two series have a common patter up to 1993:06, after which the structural breaks are considered in the error correction term of the VECM estimated by allowing for a lower constant and an increased price transmission elasticity. Figure 6.1 Long run residuals of the VECM with structural breaks (EU and WTO policy regimes, 2001/02 campaign) 0,8 0,6 0,4 0,2 0 -0,2 -0,4 1978:12 1980:12 1982:12 1984:12 1986:12 1988:12 1990:12 When cointegration is present, we expect IRFs not to always die out: their effect can be permanent, as the whole system will move to a new long run equilibrium. Both transitory and permanent shocks can be present (Goodwin et al. 1999, p.168). To calculate orthogonal IRFs, the ordering of the Choleski decomposition for the VAR reformulated in levels is swfrt, hrwt. This means that, at time t, the French price depends on only one contemporaneous structural shock, whereas the US price depends on the two of them. We could interpret the first one as a shock occurring in the EU market, which affects contemporaneously both the French and the US price, and the second one as a shock happening on world markets, which at time t affects the US price only. In other words, we assume that the US price has no contemporaneous effects on the French price, but lagged values of the US price have an effect on the French price. The French price has, instead, a contemporaneous effect on the US one. We see that all IRFs, for a 12 months time horizon, are generally low but different from zero (figure 6.2), with the exception of the French response to a shock in the US price. Both the French and the US price response to a shock in themselves tend to be persistent, whereas the response of each price to a shock in the other price is generally lower and 1992:12 1994:12 1996:12 1998:12 EC 3 residuals 3 2000:12 2002:12 4,2 4 3,8 3,6 3,4 3,2 3 105
Empirical Analysis: Cointegration Models, Structural Breaks and Policy Reform shows an upward pattern. In the long run, the ratio between the effects of a shock to the French price on swfr and hrw is 0.473, the long run transmission elasticity. 106 Figure 6.2 IRFs of the VECM with structural breaks (EU and WTO policy regimes, 2001/02 campaign) 0,1 0,08 0,06 0,04 0,02 0 -0,02 1 2 3 4 5 6 7 8 9 10 11 12 6.4.1 Assessing the robustness of the cointegration vector To assess the robustness of the parameters of the cointegration vector, the estimates have been repeated also using an alternative estimator for cointegrated systems, the Dynamic OLS estimator (or DOLS) developed by Stock and Watson (1993). Indeed, the models presented in tables 6.4, 6.5 and 6.6 have been reestimated by inserting the relevant policy regime dummies in equations like 6.4: t = hrw t + m ∑ i m + = − swfr ∆hrw + X + ε t− i t t swfr->swfr swfr->hrw hrw->swfr hrw->hrw (6.4) in which the French price was regressed on the US price and on his leads and lags differences (selected according to the SBIC), plus the regime dummies concerned (here indicated, for the sake of simplicity, with Xt). Using the DOLS allows focusing on the long run relations between the prices 84 .In general, all estimates yield consistent results, which confirms the robustness of the parameters of the cointegration vector. To give an example, the estimates of the model in 84 Indeed, a possible objection to the estimates which have been presented in paragraph 6.4 is that also the short run parameters might be influenced by the structural breaks. This would require estimating different models for the different sub-samples, which is not advisable given the limited number of observations available.
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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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4 INTERNATIONAL SOFT WHEAT MARKETS
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Page 58 and 59: 30.000 20.000 10.000 0 1961 1963 19
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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
Page 153: The notion of “price transmission
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