TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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Empirical Analysis: Cointegration Models Accounting for Policy Regime Changes ∆p α reg z + α ( 1− reg )z + Γ ∆p + ε t = ∑ − 1 t −1 1,t−1 2 t−1 2,t −1 k 1 i= 1 i t−i t (5.1) where z1,t-1=(swfrt-1 - hrwt-1) and z2,t-1 = (swfrt-1 - pintt-1). If hrwt-1 > pintt-1, and then reg 1, only z1,t-1 is “active”; if hrwt-1 < pintt-1, 1 = t− and then reg t−1 = 0 , only z2,t-1 is “active”. The LOP will hold between the French and the highest between the US and the intervention price; adjustment coefficients are allowed to vary in either case. Estimates of Model 2 are reported in table 5.7 77 . α 1 α 2 LM test ARCH (12) OV test z 1,t-1, z 2,t-1 Table 5.7 Model 2 estimates Standard errors are reported in parenthesis LM: LM test with null hypothesis of no-autocorrelation OV: Omitted Variable test (χ 2 ) * 10% significance; ** 5% significance; *** 1% significance -0.013 (0.015) -0.099*** (0.028) 0.303 (p-value 0.998) 2.265 (p-value 0.999) 15.043 (p-value 0.005) ∆swfr ∆hrw 0.022 (0.017) -0.025 (0.033) 0.543 (p-value 0.935) 25.818 (p-value 0.018) The omitted variable test for regt − 1z1,t −1 and ( 1− regt −1 )z 2,t −1 rejects the null hypothesis with a p-value of 0.005. In the French equation, the adjustment coefficients have the right sign, though only the one to the LOP holding with the intervention price is significant. As expected, for the French price α 1 < α 2 , i.e. it responds more quickly to the LOP holding with the intervention price than with the US price. In the US equation, α1 has the right sign but is not significant, and α2 has a negative sign, which means that it doesn’t correctly adjusts to the disequilibria of the LOP holding between the French and the intervention price. Actually, the interpretation of the US adjustment coefficient brings some problems. In fact, the intervention price is assumed to be a threshold for the US price; a positive, “correct” (in the conventional VECM interpretation) sign for the US adjustment coefficient would mean that, when the disequilibrium from the 77 Autocorrelation was removed by adding the 12 th differentiated lag. Monthly dummies were selected with specification tests. 87
Empirical Analysis: Cointegration Models Accounting for Policy Regime Changes LOP holding between the French and the intervention price is positive (i.e., the French price is above the intervention price), then the US price is expected to raise, and the other way round. In reality, what we observe from the estimates is that the sign of the US adjustment coefficient is negative. This means that the US price doesn’t adjust to the disequilibria of the LOP holding with the intervention price. This could just indicate a non response of the US price to the disequilibria from the LOP holding between the French and the intervention price. But another possible, alternative explanation can be figured out. Recalling that the LOP is holding between the French and the intervention price right because the latter is above the US price (in other words, when the CAP market regulation is somehow “binding”), we might think that what happens is that when the domestic French price is above the intervention price, this is likely to depress the world’s price through an increase in the export supply (Thompson 2000, p. 720), and that, alternatively, when the French price is below the intervention price, the world price would be allowed to increase. 5.2.2.2 Model 3: a changing cointegration vector As it has been previously explained, the appeal that lead to such a widespread use of cointegration models in price transmission testing is basically the possibility of separating long and short run market dynamics. In this respect, Model 3 is logically complementary to Model 2. Here, indeed, we assume that the observable regime changes don’t affect the adjustment parameters, i.e. the short run relations, but the cointegration vector itself. The French price is still expected to be linked to either the intervention or the US price according to which of them is higher; however, an attempt at discerning to which extent the two long-run relationships are different is made. In fact, the very nature of the relationship holding between the French and the intervention price is likely to be different from the one with the US price. Obviously, we suspect that the elasticity of transmission between the French and the intervention price is higher than the one between the French and the US price. The cointegration vector is then assumed to be the following one (equation 5.2): 88 swfr = t − β0 − β1wreft − β2regt wreft zt where I( 0) which means that, if hrwt > pintt, and then regt = 1, it becomes swfr = β + β + β ) hrw + z t 0 ( 1 2 t t z t ≈ (5.2) (5.3)
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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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Page 38 and 39: Empirical Tests for Spatial Price A
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
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 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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