TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

The notion of “price transmission” refers to the co-movement shown by prices of the same
good in different locations. In this respect, many empirical works essentially aim at verifying
whether the Law of One Price holds. Cointegration models especially have shown to have
an “intuitive appeal”, as they allow disentangling short and long run dynamics. However,
despite the use of increasingly sophisticated techniques, empirical findings are extremely
mixed. Indeed, a number of factors are expected to prevent prices from convergence.
This work focuses on how international price transmission is affected by domestic and
border policies. The case study is constituted by price transmission between EU and US
soft wheat markets in the years 1978-2003.
The objective of this analysis is twofold. On the one side, to develop a consistent
theoretical framework to understand under which conditions co-movement between EU
and US prices is expected, after considering the presence of domestic and border policies:
namely, the European Common Agricultural Policy and the implementation of the Uruguay
Round Agreement on Agriculture of the WTO. On the other, to derive different econometric
models in order to test whether such a co-movement exists, and to which extent it has
been affected by policy reforms.
The work is organized as follows. After a general introduction to the study of price
transmission and to empirical tests for spatial price analysis (chapters 2 and 3),
international soft wheat markets are described (chapter 4). This allows to develop a
consistent theoretical framework for the analysis, according to which different empirical
models are developed and tested (chapters 5 and 6). They represent an original attempt of
explicitly combining policy and price data. Findings contribute to shed light on a complex
and controversial empirical evidence and, in addition, to provide analytical tools which are
of a more general interest for the study of international price dynamics.
Giulia Listorti è dottore di ricerca in Economia Politica presso il Dipartimento di Economia
dell’Università Politecnica delle Marche.