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Examining volatility dynamics, spillovers and government water recovery in Murray-Darling Basin water markets

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  • Zuo, Alec
  • Qiu, Feng
  • Wheeler, Sarah Ann

Abstract

Although participation in water markets is widespread among irrigators in the Murray-Darling Basin of Australia, there has been a lack of study on the dynamics of water markets, in particular price and volume dynamics, volatility and spillovers. Questions have also been raised regarding the impact on markets from governments buying back permanent water from consumptive use to return to environmental use. VARX-BEKK-GARCH time-series regression was used to model the water market dynamics of monthly permanent and temporary water market trade from 1997 to 2017 in one of the largest water markets in the Murray-Darling Basin, the Goulburn-Murray Irrigation District. Results suggest that the temporary market was more volatile than the permanent market, while persistency in volatility only exists in permanent markets. Unidirectional transmission spillovers exists in both markets from prices to volumes. The main drivers of temporary water prices were water scarcity related, while permanent prices were most significantly influenced by previous permanent water prices and current temporary water market prices. A statistically significant negative impact on temporary volume-traded from government water recovery (e.g. a 1% increase in water recovery resulted in a 0.14% reduction in water volume-traded) was found, but no significant impact from government recovery was found on temporary water prices, nor on permanent market prices and volumes. However, government water recovery increased the volatility of temporary market prices and volumes, signaling potential increased issues of risk and uncertainty for irrigators engaging in temporary water markets.

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  • Zuo, Alec & Qiu, Feng & Wheeler, Sarah Ann, 2019. "Examining volatility dynamics, spillovers and government water recovery in Murray-Darling Basin water markets," Resource and Energy Economics, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:resene:v:58:y:2019:i:c:s0928765518304585
    DOI: 10.1016/j.reseneeco.2019.101113
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    Cited by:

    1. Sarah Ann Wheeler & Ying Xu & Alec Zuo, 2020. "Modelling the climate, water and socio-economic drivers of farmer exit in the Murray-Darling Basin," Climatic Change, Springer, vol. 158(3), pages 551-574, February.
    2. Wang, Taishan & Zhang, Junlong & You, Li & Zeng, Xueting & Ma, Yuan & Li, Yongping & Huang, Guohe, 2023. "Optimal design of two-dimensional water trading considering hybrid “three waters”-government participation for an agricultural watershed," Agricultural Water Management, Elsevier, vol. 288(C).
    3. Walid Mansour & Hechem Ajmi & Karima Saci, 2022. "Regulatory policies in the global Islamic banking sector in the outbreak of COVID-19 pandemic," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(3), pages 265-287, September.
    4. Auci, Sabrina & Pronti, Andrea, 2023. "Irrigation technology adaptation for a sustainable agriculture: A panel endogenous switching analysis on the Italian farmland productivity," Resource and Energy Economics, Elsevier, vol. 74(C).
    5. Juliane Haensch & Sarah Ann Wheeler & Alec Zuo, 2021. "Explaining permanent and temporary water market trade patterns within local areas in the southern Murray–Darling Basin," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(2), pages 318-348, April.
    6. Zuo, Alec & Wheeler, Sarah Ann & Xu, Ying, 2022. "Expanders, diversifiers or downsizers? Identifying clusters of irrigators’ water trade and farm management strategies in Australia," Agricultural Water Management, Elsevier, vol. 264(C).
    7. Sarah Ann Wheeler & Alec Zuo & John Kandulu, 2021. "What Water are We Really Pumping? The Nature and Extent of Surface and Groundwater Substitutability in Australia and Implications for Water Management Policies," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(4), pages 1550-1570, December.
    8. Sarah Ann Wheeler, 2022. "Debunking Murray‐Darling Basin water trade myths," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(4), pages 797-821, October.
    9. Adam Loch & Christopher Auricht & David Adamson & Luis Mateo, 2021. "Markets, mis‐direction and motives: A factual analysis of hoarding and speculation in southern Murray–Darling Basin water markets," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(2), pages 291-317, April.

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