TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

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Empirical Analysis: Cointegration Models, Structural Breaks and Policy Reform In addition to this, more interestingly, also market-oriented policy reforms could have played a role. We expect the MacSharry reform to have lowered EU domestic prices, and possibly reduced their distance from the world ones, and the URAA, depending on the effectiveness of tariffication, to have increased price transmission elasticities (Thompson et al. 2000, p.722). Also in this respect, empirical evidence is mixed. Thompson and Bohl (1999), by using threshold cointegration models, find low price transmission elasticities, but increasing (from 0.18 to 0.30) after the liberalization reforms. Thompson et al. (2000), by ordinary OLS and 3SLS (3 Stages Least Squares) regressions, show a negative impact of the MacSharry reform on the level of the European prices, but also that the implementation of the URAA did not change the elasticity of price transmission between world and domestic prices, whose value is about 0.11. The same results apply to Thompson et al. (2002b). They find a price transmission elasticity of 0.18; the MacSharry reform is found to have caused a significant downward shift in domestic EU prices (its coefficient is -0.23), but an interaction term is not significant, which means that no increases in the price transmission elasticity took place. Thompson et al. (2002a), instead, by estimating a SURECM in different sub-samples according to the policy regimes in place, find evidence of increased price co-movement after the URAA implementation, although their price transmission coefficient is still small (0.183). The objective of this paragraph is then to analyze the existence and the evolution of a long run relationship between US and EU prices. This analysis can represent an interesting tool for the analysis of broader policy issues. Studying the implementation of the URAA can provide insights into the effects of more general liberalization reforms; analyzing the effects of the reduction of the intervention prices, in turn, is of a crucial importance in the current “Health Check” debate of the CAP, in which the elimination of this instrument is currently being considered. By using cointegration techniques allowing for structural breaks in the deterministic trend, it is possible to take into account observable policy regime changes. These are assumed to influence both the constant and the price transmission elasticity of the cointegration relation. This allows, on one side, to consider the time series properties of the data and, on the other, to take the entire number of observations available as a whole, studying the effects of the policy changes over time. 6.3 Unit root tests and structural breaks Structural breaks due to policy reforms are likely to have affected both the pattern of EU prices and their long run relationship with the US ones. As far as European wheat prices are concerned, we expect that the MacSharry reform, by dramatically lowering intervention prices, did indeed constitute a structural break which should not be ignored while testing for unit roots. As 97
Empirical Analysis: Cointegration Models, Structural Breaks and Policy Reform explained in paragraph 3.3.1, the risk is that, without considering the presence of structural breaks, prices could result I(1) processes while indeed they are stationary around a broken level or trend. Although the standard unit root tests carried out in the two sub-samples identified as before and after the MacSharry reform (reported in annex B), that find all the series I(1), are an indirect confirmation of the appropriateness of this reasoning, also specific unit root tests which allow for the presence of one or more endogenous structural breaks are carried out. The presence of unit roots allowing for structural breaks has been tested with the Perron and Vogelsang (1992), both additional outlier (AO) and innovational outlier (IO) tests, and with Clemente et al. (1998) tests (for a description, see paragraph 3.3.1). The dataset is the same as the one described in paragraph 4.4 and used for the analysis in chapter 5. All prices have been used in logarithmic form. Results are reported in tables 6.1 and 6.2. In order to better understand the behaviour of the French price, the intervention price time series has been examined, as well. 98 Table 6.1 Perron and Vogelsang (1992) tests AO model IO model Lags Time of t stat on 5% Lags Time of t stat on 5% the break (ρ-1) critical value the break (ρ-1) critical value swfrt 12 1993:08*** -3.082 -3.560 12 1993:05*** -4.549** -4.270 pintt 14 1993:08*** -1.814 -3.560 13 1993:04*** -5.810** -4.270 hrwt 1 1986:05*** -3.998** -3.560 1 1985:01*** -4.191 -4.270 ***indicates rejection of the null hypothesis at 1%; ** at 5%; * at 10% significance swfr t pint t hrw t Table 6.2 Clemente et al. (1998) tests AO model IO model Lags Time of t stat on 5% Lags Time of t stat on 5% the break (ρ-1) critical value the break (ρ-1) critical value 12 1993:08***; 1998:01 *** -3.719 -5.490 12 1993:05***; 1997:12*** -5.934** -5.490 14 1993:08***; -2.092 -5.490 13 1993:04***; -6.838** -5.490 17 2001:08 *** 1986:09***; 1996:02*** -3.968 -5.490 1 2001:05*** 1985:01***; 2000:06** ***indicates rejection of the null hypothesis at 1%; ** at 5%; * at 10% significance -4.562 -5.490 As expected, the behaviour of the French price follows the one of the intervention price, due of course to the strong regulatory framework in place.
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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 48 and 49: ∆p + t ∑ ⎡β⎤ ' ⎡ p t =
Page 50 and 51: Empirical Tests for Spatial Price A
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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
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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
Page 139 and 140: Annexes Variable swfr 138 Annex B -
Page 141 and 142: Annexes Variable swfr 140 Table B.3
Page 143 and 144: Annexes 142 Table B.7 - Unit root t
Page 145 and 146: Annexes 144 Table C.5 - Cointegrati
Page 147 and 148: 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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