TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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Empirical Analysis: Cointegration Models Accounting for Policy Regime Changes the intervention and the US price). Finally, both adjustment coefficients and the cointegrating vector parameters are assumed to vary. The cointegration models presented, though over-simplified, represent an attempt of combining policy and price data. To the author’s knowledge, so far no such attempts have been made. The “composite variable” model, Model 1, is presented in paragraph 5.2.1; whereas the other empirical models, Model 2, Model 3 and Model 4, are presented in paragraph 5.2.2. 5.2.1 Model 1: the use of a composite variable As anticipated, to take into account the role played by EU policies for soft wheat, some alternative schemes can be proposed. The first one is the creation of a composite variable, the “EU external reference price” (wreft). Indeed, assuming that the fundamental target of the EU price policy is to keep at least the intervention price level in the internal market, each month the “EU external reference price” is calculated as the maximum between the intervention price and the US (world) price; wreft = max (hrwt,pintt). What is argued is that the EU price follows the US price, when it is above the intervention price, and vice versa. The intervention price acts as an implicit downward threshold for the US price. In this paragraph, the empirical study will be carried out both on the whole sample (301 observations, 1978:12 to 2003:12), and on two sub-samples, determined on the basis of the policy considerations made in the previous chapter, as described in table 5.1 63 . Table 5.1 The two sub-samples used in the cointegration analysis 1978:12- 1993:06 175 observations 1993:07- 2003:12 126 observations Precedent to substantial CAP reform (Regular CMO functioning, first reforms of 1988) Following substantial CAP reform (Mac Sharry reform, Agenda 2000, Fischler reform) Indeed, the MacSharry reform of 1993 represents the first fundamental change in the CAP of the EU, since, for the first time, substantial cuts of the intervention prices (-30%) were implemented. In fact, as expected, the US price tends to be 63 Considering the limited power of unit roots and cointegration tests, it was not deemed appropriate to split the whole sample into the four sub-samples described in paragraph 4.2.2. For this reason, and considering its political relevance, the MacSharry reform has been chosen as the fundamental break. 77
Empirical Analysis: Cointegration Models Accounting for Policy Regime Changes higher than the intervention price from the MacSharry reform onwards (see also figure 4.8). Looking at the behaviour of the prices, we can also notice that the French price seems to follow more the intervention price before the implementation of the MacSharry reform, i.e. when it is normally higher than the US price, and the US price afterwards, when the reverse holds (figure 4.8, and 5.1). 250 200 150 100 50 78 1978:12 1980:12 Figure 5.1 Soft wheat French price and world reference price (euro/t) 1982:12 1984:12 1986:12 1988:12 1990:12 Source: Eurostat; International Grains Council; European Commission regulations Throughout the whole analysis that will follow, prices are expressed in logs. Unit root tests have been repeated both in the whole period and in the two subperiods identified above 64 . Augmented Dickey Fuller (ADF) tests have been run by adding the last significant lag up to a maximum of 18, due to the monthly nature of the data. Phillips-Perron (PP) tests were run with a number of lags determined by minimizing the Schwartz's Bayesian Information Criterion (SBIC) in a number of autoregressive specifications up to a maximum of 18 lags. The choice of the lag length was generally unaffected by the deterministic trend. Considering the monthly nature of tha data, 24 lags were used for the Kwiatkowski, Phillips, Schmidt e Shin (KPSS) tests. Finally, it could be argued that the presence of seasonality in the monthly price series might undermine the ability of ADF tests to verify unit roots; for this reason, monthly dummies were introduced into the ADF tests estimations 65 . 64 Both STATA® and GRETL (www.gretl.sourceforge.net ) softwares were used for the econometric estimations. 65 With monthly data, both conventional and seasonal unit roots might be present; but the latter are less plausible in economic time series since they imply an evolving seasonal pattern (Dawson and Sanjuan 2006, p. 104). For this reason, we don’t take them into account. 1992:12 1994:12 1996:12 1998:12 2000:12 2002:12 swfr wref
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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
Page 28 and 29: 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 80 and 81: 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
Page 122: References Thompson, S. R., Sul, D.
Page 125 and 126: Annexes 124 Annex A - Empirical ana
Page 127 and 128: Annexes METHODOLOGY DATA USED MAJOR
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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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