TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

Annexes
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Annex A – Empirical analysis on price transmission: a review
METHODOLOGY DATA USED MAJOR FINDINGS
CORRELATION
Isard, 1977
By visual inspection and by ordinary
regression (Cochrane-Orcutt
procedure), the behaviour of relative
prices for various industries, is
examined.
Stigler and Sherwin, 1985
They investigate the relations existing
between differentiated series of prices.
They use correlation analysis to assess
the belonging of prices to the same
market.
Monthly time series of US,
Germany and Japanese prices
for a variety of industries
collected at different
frequencies for the years 1968-
1975.
Monthly wholesale prices (logs,
indexes, levels) for a number of
items: silver futures, flour,
wheat, gasoline, interest rates,
wages…
Various years.
Substantial changes in
exchange rates have
substantial and persistent
effects on the relative
common currency prices for
close substitute products of
different countries.
The study, which covers
different markets (future
markets, commodity
markets, capital and labour
markets), discusses
fundamental issues related to
market integration.
DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL: RAVALLION’S CRITERIA
Aldermann,1992
He applies both Ravallion’s radial
dynamic model of market integration
and cointegration techniques.
Cointegration relations are analyzed
within the same market between
commodities that can be considered
close substitutes.
His objective is to verify whether, in
developing countries, the connections
existing among markets of different
agricultural commodities allow
governments to use policy measures
addressed to only one of them.
Mundlak and Larson, 1992
They investigate world markets to find
out what proportion of world prices is
transmitted to the domestic ones
(coefficients of the regressions) and
what proportion of the variation in
domestic prices can be attributed to
the variations in world prices (R 2 of
the regressions). They analyze
different panel models (all
commodities for each country,
nominal and real values; all countries
pooled together; insertion of yearly
dummies; between and within
commodity regressions).
Deflated monthly wholesale
maize, sorghum and millet
prices (levels) from three
markets in Ghana.
1977-1990.
In a first analysis, the prices
refer to 58 counties and 60
products, in the years1968-
1978; then they examine the
prices in EU countries, for 25
years.
Prices of different
commodities are
cointegrated. Often, the past
prices of one product can be
used to predict the prices of
another one.
Functional efficiency in
Ghana’s coarse grain
markets is found.
This study finds very high
transmission elasticities for
all countries (in the range of
0.74-1.24) and very high
values of R 2 (in the range of
0.66 and 0.96).
The results are however
likely to be biased by
complete disregarding the
time series properties of the
data (autocorrelation tests are
not reported).