Price Transmission Asymmetries and Nonlinearities in the International Coffee Supply Chain
AbstractWe examine two distinct and important dimensions (e.g. symmetry vs. asymmetry and linearity vs. nonlinearity) of price transmission from international to retail coffee prices in France, Germany and the United States. We show that ignoring these two features of the price transmission process may lead to misleading impact assessments resulting from the elimination of International Coffee Agreement (ICA) in 1990. Our results confirm the presence of threshold effects in both periods (ICA and post ICA) in all three countries. Our estimates show that, in the long-run, the speed of adjustment toward equilibrium becomes faster during the post-ICA period in France and Germany. Our results suggest that, for these two countries, changes in international prices did not influence retail prices in the short-run during the ICA period; in contrast, retail prices responded to changes in international prices in the post-ICA period. Our results suggest differences between the two European countries and the United States. Specifically, our results indicate that changes in international prices influence U.S. retail prices in both periods. Nonlinear impulse response analysis indicates that ICA elimination in 1990 increased the speed of adjustment toward the long-run equilibrium, given a shock in international coffee prices. Our results show that ignoring nonlinearities and asymmetries in price transmission may lead to incorrect assessment of the consequences accruing to the elimination of the ICA.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 104024.
Date of creation: 2011
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Threshold; Nonlinearity; Asymmetric Price Transmission; Roasted Coffee; Germany; United States; France; Error Correction Model; Demand and Price Analysis; International Relations/Trade; C32; Q17;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-24 (All new papers)
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- Al-Gudhea, Salim & Kenc, Turalay & Dibooglu, Sel, 2007. "Do retail gasoline prices rise more readily than they fall?: A threshold cointegration approach," Journal of Economics and Business, Elsevier, vol. 59(6), pages 560-574.
- von Cramon-Taubadel, Stephan, 1998. "Estimating Asymmetric Price Transmission with the Error Correction Representation: An application to the German Pork Market," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 25(1), pages 1-18.
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