TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...
TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...
TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...
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METHODOLOGY DATA USED MAJOR FINDINGS<br />
DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL (GC TESTS, IRFS, FEV)<br />
Gupta and Mueller, 1982<br />
They use GC tests (Haugh test to<br />
assess the dependence-independence<br />
between series; Sims test to ascertain<br />
the direction of causality) to see<br />
whether markets are perfectly priceefficient.<br />
Differently from the use of<br />
correlation coefficients, which only<br />
report the association between prices,<br />
this methodology allows to test if<br />
markets are independent,<br />
interdependent, or if lead-lag relations<br />
exist.<br />
Myers et al., 1990<br />
VAR methods are used to analyze the<br />
contribution of supply, demand and<br />
policy shocks to unpredictable<br />
fluctuations in the market for<br />
Australian wool. They develop a<br />
structural VAR in which the<br />
restrictions (which define<br />
contemporaneous interactions among<br />
variables) do not impose a recursive<br />
ordering of the variables. They<br />
perform IRF and FEV.<br />
Vollrath and Hallahan, 2006<br />
They investigate market integration<br />
for meat and livestock in the US and<br />
Canada, making use of three models:<br />
“streamlined” (prices expressed in a<br />
common currency) and “detailed”<br />
LOP models (to quantify both foreign<br />
price and exchange rate transmission),<br />
VAR models (IRF). They consider<br />
trade policy barriers and exchange rate<br />
changes, and evaluate the CUSTA<br />
(Canadian US Free Trade Agreement,<br />
since 1989) and its extension, the<br />
NAFTA (North American Free Trade<br />
Agreement, since 1994)<br />
Weekly prices (differentiated<br />
logs) for slaughter hogs in three<br />
German markets.<br />
Week 1:1977 - week 50:1980<br />
Quarterly prices for Australian<br />
wool, quantity purchased by<br />
private traders, total quantity of<br />
wool sold (in logs).<br />
1971:1 to 1988:2.<br />
US and Canada wholesale<br />
monthly and weekly prices for<br />
slaughter (steers, hogs, whole<br />
chicken), two cuts of beef and<br />
two pork products (in logs);<br />
US/Canada exchange rate.<br />
1988 - 2002<br />
DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL: COINTEGRATION<br />
Ardeni, 1989<br />
For the first time, cointegration is<br />
proposed to analyze the LOP, arguing<br />
that previous tests are flawed for<br />
disregarding the time series properties<br />
of the data.<br />
Quarterly export prices (in logs)<br />
for wheat, wool, beef, sugar,<br />
tea, tin and zinc for Australia,<br />
Canada, the UK, the US. Data<br />
are adjusted for exchange rates.<br />
January 1957-January 1986<br />
(from 79 to 117 obs., depending<br />
on the commodity).<br />
Annexes<br />
They find that markets are<br />
price-efficient, since the tests<br />
show that they are<br />
interdependent.<br />
Demand shocks are the<br />
dominant source of wool<br />
market fluctuations but<br />
intervention has blunted their<br />
effects.<br />
The market of whole chicken<br />
is segmented; hog and pork<br />
product markets are more<br />
integrated than steer and beef<br />
product markets. Changes in<br />
the Canadian-US exchange<br />
rate inhibits cross border<br />
integration.<br />
The LOP holds only in a<br />
small number of cases (but is<br />
nonetheless valid for US-<br />
Australian wheat, US-<br />
Canadian wheat); deviations<br />
from the pattern are<br />
permanent.<br />
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