TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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.
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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.