TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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METHODOLOGY DATA USED MAJOR FINDINGS DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL: COINTEGRATION Ghoshray and Lyoid, 2003 By using the method of irreducible cointegrated vectors, they investigate the relations existing amongst wheat prices of different countries according to wheat type and port location. Ghoshray et al., 2000 They analyze the cointegrating relationships existing in 12 pairs of prices constituted by the EU price plus another one. Ghoshray, 2002 He examines price differentials in the international wheat market using threshold autoregressive (TAR) and momentum threshold autoregressive (M-TAR) models, that allow for asymmetric adjustment. Gjoelberg et al. (1996) A set of conditions to hold is proposed to have market integration: not only must prices be cointegrated in a dynamic specification and adjust rapidly towards equilibrium, but also they must not systematically fluctuate outside transaction costs ranges, they must react simultaneously to new information (i.e., have a common behaviour at the harvest time), display similar paths within the marketing year, and tend towards “one price”. Goodwin, 1992 He applies Johansen’s multivariate cointegrating testing procedure, arguing that bivariate Engle Granger cointegration tests are limited. Monthly fob export prices (in logs) of 13 different price series (from Argentina, Australia, Canada, the US, the EU). July 1980-December 1998. Monthly fob export prices (in logs) of 13 different price series (from Argentina, Australia, Canada, US, EU). July 1980-December 1998. Monthly average export price quotations on 8 series of Australian, Canadian, US and EU hard medium and soft wheat, analyzed in pairs (in logs). July 1980 to December 1985 Monthly producer prices for soft wheat (Eurostat) for Belgium, Italy, germany, the United Kingdom and France January 1984-December 1994 Monthly fob export prices (in levels) for the US, Canada, Australia, cif prices for Japan and the EU. Monthly average freight rates from the US Gulf to Rotterdam and Japan. January 1978-December 1989. Annexes They provide statistical support for examining wheats that have different end uses (namely hard wheats), separately. They find that cointegration exists in all the pairs but in those including Canadian feed wheat. All wheats used for human consumption show a common trend, while feed wheats have another one. The world wheat market is highly integrated and little evidence for asymmetry exists. Where asymmetry is found, it might be due to the quality of wheat (Canadian and Australian prices for higher quality wheats may respond easier to price increases than to price decreases). Evidence of no integration is found for EU wheat markets; only limited evidence of convergence towards a common price can be found. This can be due to distorsive effect of the CAP, due for example to the Monetary Compensatory Amounts, functioning as subsidies/taxes on intra-EU trade. He argues that, if transport costs are explicitly taken into account, the Law of One Price is valid. The inclusion of freight rates in the model (by subtracting them to the cif prices of the EU and Japan) allows to find one cointegration vector. 131
Annexes METHODOLOGY DATA USED MAJOR FINDINGS DYNAMIC REGRESSION MODELS BASED ON A POINT LOCATION MODEL: COINTEGRATION Goodwin et al., 1999 They evaluate spatial price dynamics and integration for selected Russian food markets by using conventional time series tests of spatial integration with an analysis of dynamic responses to price shocks (GC and IRF). Goodwin and Schroeder, 1991b By using cointegration tests, they evaluate spatial linkages in regional cattle markets. They conduct seven different Engle- Granger cointegration tests for two specifications of ten market comparisons over four periods. By using bootstrap regression techniques, they assess the influence on the test statistics of concentration ratios, average annual slaughter volumes and the distance between markets. Hui Shung and Griffith, 1998 They investigate short and long run dynamics in the Australian beef market between farm, wholesale and retail prices, with cointegration and IRF. Margarido et al., 2004 They investigate the elasticities of transmission in the soybeans market through the use of cointegration techniques (one VECM model for all the prices). They then calculate IRFs and FEVs. 132 Weekly eggs, milk, vegetable oil and potatoes prices in five Russian cities in both retail and “gray” (free) markets (in logs). Results were repeated with deflated prices and were found similar. June 1993-December 1994. Weekly price series for slaughter steers for eleven regional US markets (in levels). January 1980-September 1987. Monthly beef farm, wholesale and retail prices in Australia. January 1971 to September 1994 Monthly soybeans prices (in logs): cif Rotterdam Port, fob Argentina, fob US. October 1995-October 2003. Results provide tempered support for spatial integration, especially in retail market. Retail markets have bigger efficiency advantages and economies of scale, which allow a better price transmission than for “gray” markets. Because of gradual adjustments to price shocks, integration may occur mainly in the long run. Their results can be summarized as follows: increased market concentration leads to higher cointegration; relative slaughter volume has a negative impact on cointegration (the smaller markets exhibit a smaller degree of spatial dependence than the bigger ones); the degree of price cointegration is negatively affected by bigger distances between markets. Increasing cointegration during the 1980s is explained by structural changes in the livestock industry. The three prices considered are cointegrated; the wholesale price is found to be weakly exogenous, which could be an indication of market inefficiency due in part to price levelling. The LOP is valid in the long run. Brazil and Argentina can be seen as price takers. Seasonal differences may explain the pattern of the response of Brazilian prices to shocks in the international market.
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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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Empirical Analysis: Cointegration M
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Page 116 and 117: REFERENCES Alderman, H., 1992. Inte
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