TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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METHODOLOGY DATA USED MAJOR FINDINGS DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL (GC TESTS, IRFS, FEV) Gupta and Mueller, 1982 They use GC tests (Haugh test to assess the dependence-independence between series; Sims test to ascertain the direction of causality) to see whether markets are perfectly priceefficient. Differently from the use of correlation coefficients, which only report the association between prices, this methodology allows to test if markets are independent, interdependent, or if lead-lag relations exist. Myers et al., 1990 VAR methods are used to analyze the contribution of supply, demand and policy shocks to unpredictable fluctuations in the market for Australian wool. They develop a structural VAR in which the restrictions (which define contemporaneous interactions among variables) do not impose a recursive ordering of the variables. They perform IRF and FEV. Vollrath and Hallahan, 2006 They investigate market integration for meat and livestock in the US and Canada, making use of three models: “streamlined” (prices expressed in a common currency) and “detailed” LOP models (to quantify both foreign price and exchange rate transmission), VAR models (IRF). They consider trade policy barriers and exchange rate changes, and evaluate the CUSTA (Canadian US Free Trade Agreement, since 1989) and its extension, the NAFTA (North American Free Trade Agreement, since 1994) Weekly prices (differentiated logs) for slaughter hogs in three German markets. Week 1:1977 - week 50:1980 Quarterly prices for Australian wool, quantity purchased by private traders, total quantity of wool sold (in logs). 1971:1 to 1988:2. US and Canada wholesale monthly and weekly prices for slaughter (steers, hogs, whole chicken), two cuts of beef and two pork products (in logs); US/Canada exchange rate. 1988 - 2002 DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL: COINTEGRATION Ardeni, 1989 For the first time, cointegration is proposed to analyze the LOP, arguing that previous tests are flawed for disregarding the time series properties of the data. Quarterly export prices (in logs) for wheat, wool, beef, sugar, tea, tin and zinc for Australia, Canada, the UK, the US. Data are adjusted for exchange rates. January 1957-January 1986 (from 79 to 117 obs., depending on the commodity). Annexes They find that markets are price-efficient, since the tests show that they are interdependent. Demand shocks are the dominant source of wool market fluctuations but intervention has blunted their effects. The market of whole chicken is segmented; hog and pork product markets are more integrated than steer and beef product markets. Changes in the Canadian-US exchange rate inhibits cross border integration. The LOP holds only in a small number of cases (but is nonetheless valid for US- Australian wheat, US- Canadian wheat); deviations from the pattern are permanent. 127
Annexes METHODOLOGY DATA USED MAJOR FINDINGS DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL: COINTEGRATION Asche et al., (1999) The authors analyze the relation between market integration and product aggregation. In the deterministic case, if the Composite Commodity Theorem holds, the LOP holds, as well, and vice versa: in fact, for both conditions to hold, prices must move proportionally over time. In the stochastic case, the results also apply hold for relationships with stationary deviations. Baek and Koo, 2005 This study examines price dynamics in the U.S. and Canadian hard red spring and durum wheat markets by using a vector error-correction model. The presence of a structural break is taken into account by splitting the sample in two. Baffes, 1991 Using the same dataset and the same techniques as Ardeni, he shows instead that the LOP holds. The difference in the findings is explained by the fact that he imposes the cointegration parameters and uses the variables in levels. Barassi and Ghoshray, 2007 They test cointegration with structural change between the EU and the US. They use a novel cointegration method which allows the time of the break to be unknown. The analysis is repeated on the two sub-samples identified. 128 fob Norwegian and US salmon prices for four different Pacific species. January 1986 – December 1996 Monthly fob prices for the US and Canadian durum and hard red spring prices, already converted in dollars. July 1979 to June 2002 Same as Ardeni (1989), but variables are used in levels. Monthly fob prices for EU wheat, US Hard Red Winter Wheat and US Soft Red Wheat (used in logs). July1981-July 2000. The analysis indicates that the species compete in the same market, as their prices are cointegrated; the LOP holds; the generalized composite theorem holds. The Hard Red Wheat exporting industry and Canada have been the price leader in North American wheat markets. The LOP cannot be rejected as a maintained hypothesis. When it fails, transport costs might be the explanation (non-stationarity of freightrates might explain nonstationarity of prices differentials). A structural break occurred after the MacSharry CAP reform was implemented. Before that, the only cointegrating relation existing is between the two US wheats. After that, they find a cointegrating vector between the US Hard Red Winter wheat and the US Soft Red Winter wheat, and another one between the US Soft Red Wheat and the EU. The EU acts as a price follower, as it would be expected since it makes use of export subsidies.
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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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5 EMPIRICAL ANALYSIS: COINTEGRATION
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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
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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
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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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