TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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METHODOLOGY DATA USED MAJOR FINDINGS DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL: RAVALLION’S CRITERIA Ravallion, 1986 In his model of market integration, the price series for each local market have their own autoregressive structure and a dynamic relationship with market prices in a central region. His approach permits to distinguish between short and long run market integration. Richardson, 1978 He tests the Law of One Price using twice differenced prices, to avoid of problems related to serial correlation and omitted explanatory variables. Thompson et al., 2000 They want to test if the elasticity of transmission between EU and world prices was really zero under the old CAP, and how it has been affected by policy regime changes. Germany is assumed to be a small country for which the world price is exogenous. An econometric model is also built. They analyze the effect of the change in the variability of prices on consumers’ welfare. Monthly rice price data in five districts of Bangladesh (levels). Dummies to account for seasonality, the famine in 1974, and a time trend are included. July 1972- June 1975. Monthly observations on Canadian and US price indexes (twice differenced logs). The exchange rate is included as a regressor. 1965-1974. Annual data are derived by averaging monthly data (logs are used). The world wheat price is in US $ from the USDA, converted into DM using IMF exchange rates. The German producer price is from CRONOS dataset of EUROSTAT. Both price series are deflated by the CPI of their respective country. 1976-1998. Annexes Departures from the conditions of both short run and long run integration are found in Bangladesh. They would not be revealed by the use of static correlation techniques. The Law of One Price fails. Canadian prices respond in the same way to exchange rates and US prices. The MacSharry reform caused a reduction in the levels of EU prices, but the URAA didn’t have any significant effect on price transmission elasticities, that have an average value of 0.11 (which means that tariffication was not effective). The existence of low but not zero price transmission elasticities before the URAA suggests that the domestic support prices were not completely independent from the world ones. The impact of policy changes on producers’ welfare is mostly due to cuts in protection (transfer) than to income instability (risk). Through compensative hectare payments, EU farmers are overcompensated. 125
Annexes METHODOLOGY DATA USED MAJOR FINDINGS DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL: RAVALLION’S CRITERIA Thompson et al., 2002b They develop an aggregate structural model of the EU wheat economy, linked to the rest of the world. Amongst the structural equations estimated with 3SLS techniques, the price transmission equation regresses the EU price on a constant term, the world price, a time trend, and a dummy variable accounting for the MacSharry reform. 126 Annual data are derived by averaging monthly data (logs are used). The world wheat price is in US $ from the USDA, converted into DM using IMF exchange rates. The German producer price is from CRONOS dataset of EUROSTAT. Both price series are deflated by the CPI of their respective country. 1976-2000. They find a price transmission elasticity of 0.18, as the one obtained by Thompson et al. (2002a). The MacSharry reform is found to have caused a significant downward shift in prices; the addition of an interaction term is not significant. DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL (GC TESTS, IRFS, FEV) Goodwin and Schroeder, 1991a They estimate a VAR in levels between the prices. Their analysis focuses on Forecast Variance Error (FEV) decomposition and Impulse- Response Functions (IRF). Gordon et al., 1983 They use a modification of Granger Causality test, the Holmes and Hutton causality test, based on the rank ordering of each variable. They test both bivariate models and trivariate ones. Monthly fob prices (in levels) for six exporting and importing wheat markets: US, Canada, Argentine, Australia, Japan and the EU. Missing observations are obtained regressing the series on a price series of a closely related market. Special Drawing Rights are used as a measure for exchange rates effects. A unique freight rate is calculated as the arithmetic average of various ones. July 1975 - December 1986 Weekly prices (levels) of lamb: French lamb, Anglo-Irish lamb price on the French market, UK lamb price in the UK. 1983-1986. According to the FEV, US and Canada seem to be dominant markets. A large proportion of FEVs are explained by transportation costs and the US and Canadian prices. Adjustments to innovations in freight rates are quite slow to occur. The IRFs show rapid price adjustments to exchange rate shocks, to US price shocks, to Canadian shocks (but not for the US and Argentina). Shocks in freight rates take two or more months to produce effects, but the response is large and persistent. British and French markets are integrated in the sense that price shocks in one market are eventually and fully transmitted on price changes in the other market. However, long orders of lag specifications are necessary, indicating a slow response to price incentives.
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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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International Soft Wheat Markets Un
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30.000 20.000 10.000 0 1961 1963 19
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250 200 150 100 50 1978:12 Internat
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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
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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: Annexes 124 Annex A - Empirical ana
Page 129 and 130: 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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