TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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International Soft Wheat Markets Under Policy Intervention While the EU soft wheat is a medium protein wheat, weak, the Hard Red Winter wheat has a higher protein content and is classified as medium strong. We mentioned already that the Hard Red Winter wheat has commonly been used to represent the world price, but it has also been argued that the Soft Red Winter wheat, which has a lower protein content, would indeed be a closer substitute for European soft wheat (Barassi and Ghoshray 2007; Verga and Zuppiroli 2003). However, remembering the considerations mentioned above, and noting that, when the behaviours of different US wheat prices are compared, they seem to be very close but for a constant term (figure 4.10; the Dark Northern spring, used for the analysis in Thompson and Bohl (1999) has an even higher protein content than the Hard Red Winter Wheat), the use of the Hard Red Winter wheat as world representative seems a reasonable assumption. 300 250 200 150 100 50 1978:12 1980:12 1982:12 Figure 4.10 Various US wheat prices (euro/t) 1984:12 1986:12 1988:12 1990:12 Source: International Grains Council Quality differences to a higher level of detail are not explicitly considered and, together with transport costs for which data are not accessible, the strong assumption for them to be stationary around a constant proportion of prices is made (see paragraphs 2.3, 3.2.1 and 3.4). Although very strict, this assumption seems not to be too far from reality in the period considered in the analysis. Indeed, the ratio between freight rates and fob US prices oscillates in a quite limited range, before starting a dramatic increase in 2004 (figure 4.11). This could be taken as evidence of a substantial stability of the proportion of transportation costs on prices in the years considered in the analysis. 1992:12 1994:12 1996:12 1998:12 Hard Red Winter wheat Soft Red Winter wheat Dark Northern Spring 2000:12 2002:12 71
International Soft Wheat Markets Under Policy Intervention 30 20 10 0 1978:12 72 1980:12 Figure 4.11 Freight rates expressed as a percentage of fob prices 1982:12 1984:12 1986:12 1988:12 1990:12 1992:12 Source: International Grains Council Policy regime changes will be taken into account through the various schemes which will be developed; all other components of possible market deviations from the LOP are not available, as it happens in most of the literature revised. As Thompson and Bohl (2002, p.1045) note, the analysis can be considered within what Barrett (1996, p. 825) defines as “level 2” of market analysis, which “more closely resembles spatial equilibrium theory”. Some descriptive statistics of the data, according to the major CAP changes and the URAA implementation, are provided in table 4.3. We can notice that both swfr and pint average values show a decrease in time. On the other side, hrw decreases in the second sub-period, and then increases in the other two to higher levels than those in the beginning of the sample. hrw’s variability decreases over time; swfr’s variability, which is always smaller than the hrw’s one, decreases, too, but only until 1993, to increase afterwards. Bale and Lutz (1979) demonstrate how policy measures and international trade distortions do affect the variability of prices: so, one might argue that swfr’s variability was kept low thanks to protectionist EU agricultural policies, and then rose after 1993, when substantial policy reforms were introduced (Thompson 1999, p. 8). Verga and Zuppiroli (2003, p.28) on the other side, assert that the increased volatility for the EU prices realized after 1993 doesn’t depend on a major interaction with international prices, but only on the fact that, as the EU intervention price was reduced, prices could fluctuate more. 1994:12 1996:12 1998:12 2000:12 freight rate/fob price % 2002:12 2004:12 2006:12
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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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Page 21 and 22: Price Transmission and the Law of O
Page 24 and 25: 3 EMPIRICAL TESTS FOR SPATIAL PRICE
Page 26 and 27: Empirical Tests for Spatial Price A
Page 32 and 33: = β 2 i0 Empirical Tests for Spati
Page 48 and 49: ∆p + t ∑ ⎡β⎤ ' ⎡ p t =
Page 54 and 55: 4 INTERNATIONAL SOFT WHEAT MARKETS
Page 56 and 57: International Soft Wheat Markets Un
Page 58 and 59: 30.000 20.000 10.000 0 1961 1963 19
Page 70 and 71: 250 200 150 100 50 1978:12 Internat
Page 76 and 77: 5 EMPIRICAL ANALYSIS: COINTEGRATION
Page 78 and 79: Empirical Analysis: Cointegration M
Page 82 and 83: α LM test ARCH(13) Empirical Analy
Page 96 and 97: 6 EMPIRICAL ANALYSIS: COINTEGRATION
Page 110: Empirical Analysis: Cointegration M
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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References Thompson, S. R., Sul, D.
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Annexes 124 Annex A - Empirical ana
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Annexes METHODOLOGY DATA USED MAJOR
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Annexes Variable swfr 138 Annex B -
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Annexes Variable swfr 140 Table B.3
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Annexes 142 Table B.7 - Unit root t
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Annexes 144 Table C.5 - Cointegrati
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Annexes 146 Table D.4 - Unit root t
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Annexes 148 Annex E - Unit root tes
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Annexes Table E.5 - Unit root tests
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The notion of “price transmission
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