TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

Empirical Analysis: Cointegration Models Accounting for Policy Regime Changes
to the disequilibria between the French and the intervention price (see previous
paragraph).
5.2.2.3 Model 4: both adjustment coefficients and cointegration parameters can
vary
Finally, in Model 4, both adjustment coefficients and the cointegrating
relationship were allowed to differ according to the policy regime in place. In
equation 5.5, the disequilibrium term zt has been calculated as in Model 3, and
then has been multiplied by the policy regime dummy like in Model 2.
90
t = α regt
1 z t 1 + α − regt
1 z t 1 + ∑ − k 1
4 * − * − 5 * ( 1 − ) * −
i=
1
∆p Γ ∆p + ε
i
t−i
t
(5.5)
What happens is that, if regt-1 = 1, the adjustment coefficients to the LOP
holding with the US price are given by α4; if regt-1 = 0, then the adjustment
coefficients to the LOP holding with the intervention price are given by α5.
The empirical estimates reported in table 5.9 79 show that the adjustment
coefficients of both the US and the EU prices behave consistently with Model 2,
though slightly higher in absolute value.
α 4
α 5
LM test
OV test z 1,t-1, z 2,t-1
ARCH (12)
Table 5.9 Model 4 estimates
∆swfr ∆hrw Cointegration vector
-0.023
(0.026)
-0.260***
(0.049)
0.233
(p-value 0.999)
28.815
(p- value 0)
1.814
(p-value 0.999)
0.021
(0.031)
-0.069
(0.060)
0.537
(p-value 0.938)
28.096
(p-value 0.005)
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
swfr = 1.
400*
* * + 0.
707*
* * wref − 0.
022*
* * reg wref
79 Autocorrelation was removed by adding the 12 th differentiated lag. Monthly dummies were selected with
specification tests.
t
( 0.
205)
( 0.
040)
t
( 0.
002)
t
t