TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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METHODOLOGY DATA USED MAJOR FINDINGS DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL: COINTEGRATION Brooks et al. (2005) They study the transmission of world to domestic prices in Brazil for a number of commodities. Standard cointegration procedures are compared in the overall sample and in two sub samples identified by the presence of policy regime changes, and then with the threshold model of Bailey, Balcombe and Brooks (BBB; 2006). Bukenya and Labys, 2005 They examine the degree to which commodity prices have converged on world commodity markets by using correlation, regression, VAR and cointegration analysis. Conforti, 2004 Both spatial and vertical price relations are investigated through the use of Autoregressive Distributed lag Models from which the corresponding Error Correction specification is derived. Annual price information is analyzed by testing for a long run equilibrium between the price series; monthly information by paying more attention to the dynamics of the relation between prices, to their causality (GC tests in both directions for the ARDL), and to the asymmetry of price transmission. Brazilian monthly prices for wheat, maize, rice, dry beans, soybeans, coffee, poultry, pig meat and beef (logs). January 1989 to October 2003. Annual data for tin, copper, lead, coffee, cotton, wheat (in US dollars). 1930-1998 Both annual and monthly prices for a number of basic food commodities collected from various sources in 16 countries (Argentina, Brazil, Chile, Costa Rica, Egypt, Ethiopia, Ghana, India, Indonesia, Mexico, Pakistan, Senegal, Thailand, Turkey, Uganda, Uruguay). The study used import prices, producer prices, wholesale prices and retail prices (in logs). Annexes Cointegration tests for Brazilian prices support the hypothesis of discontinuous price transmission and the presence of different regimes following policy reforms in the mid-1990s (with differences amongst the different markets). Once threshold effects are taken into account, prices show a much faster rate of adjustment outside the bound. The thresholds identified by BBB are sometimes difficult to reconcile with data on trade flows. The empirical results don’t support price convergence, with the exception of lead and wheat. Three main findings emerge: geographical regularity (African countries show lower degree of price transmission than Asian and Latin America ones); vertical transmission appears to be higher than the transmission of changes in the world reference prices; cereals show higher and faster price transmission, followed by oilseeds, while price transmission for livestock is poorer. 129
Annexes METHODOLOGY DATA USED MAJOR FINDINGS DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL: COINTEGRATION Dawson and Sanjuan and White, 2006 They apply Johansen’s procedure allowing for structural breaks. The time of occurrence of the structural break is known. Co-movement between futures prices can arise when commodities are substitutes. They investigate the relation between feed barley and wheat prices on the London International Financial Futures Exchange. Dawson and Sanjuan, 2006 They apply Johansen’s procedure allowing for structural breaks to investigate the dynamics of North America wheat markets and verify the effects of the Export Enhancement Program. The time of occurrence of the structural break is known. Dercon and Campenhout, 1999 They apply a threshold error correction model, the Band-TAR model. Such a model, like switching regime models (they explicitly refer to Baulch’s parity bound model), allows for trade discontinuities and trade flow reversals, but uses more reasonable distributional assumptions and is dynamic, explicitly considering the process of arbitrage in the form of non-linear correction. 130 London International Financial Futures Exchange weekly data for feed wheat and barley future prices (in logs). 1996-2002 Monthly fob prices (in logs): Canadian Western Red Spring, US Dark Northern Spring. January 1974-December2001. Same as Baulch, (1997). They find a significant break in October 2000 (due to Common Agricultural Policy intervention price reductions and poor sowing conditions). The barley–wheat futures market is perfectly integrated; the barley price Granger-causes the wheat price. Modelling structural breaks in price relationships appears of big importance. They find that cointegration exists and that there are two structural breaks corresponding to the beginning and the end of the US Export Enhancement Programme. The EEP has caused the US/Canada price ratio to fall. They find that in most markets full arbitrage is achieved with trade taking place; but, differently from Baulch, that in others arbitrage is slow and rather inefficient. This might be due to imperfect competition. This is explained by the fact that, in Baulch’s model, even in the efficient arbitrage regime, the transfer costs are assumed to be measured with errors (but dynamic properties of the errors are not considered), whereas here the price margin is taken as such. On the other side, they probably overestimate the times in which the efficient arbitrage condition is violated.
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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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Empirical Analysis: Cointegration M
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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 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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