The Law of One Price under State-Dependent Policy Intervention: An Application to the Ukrainian Wheat Market
AbstractThis paper investigates the effects of state-dependent policy interventions on price transmission. Our empirical application focuses on price linkages between the Ukrainian wheat price and the world price. The empirical analysis is based on the smooth transition conintegrating (STC) framework and follows the general procedures used to investigate long-run equilibrium and short-run error correction. The results indicate that there is regime-switching behavior in the long-run relationship between the Ukrainian and world markets, conditional on the world price. When the world price of wheat is below the threshold of $185/ton, the transmission elasticity of domestic price with respect to the world price approaches unity. However when the world price is above the threshold level, the transmission elasticity drops to 0.7. Finally, we also find that adjustments toward the long-run equilibrium take place through changes in Ukrainian domestic price alone. Our results suggest that the Ukrainian wheat market is well integrated into the world market. However, government intervention can cause significant long-term losses for Ukrainian producers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington with number 124904.
Date of creation: 12 Aug 2012
Date of revision:
Contact details of provider:
Postal: 555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-25 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Park, Joon Y. & Phillips, Peter C.B., 1999.
"Asymptotics For Nonlinear Transformations Of Integrated Time Series,"
Cambridge University Press, vol. 15(03), pages 269-298, June.
- Peter C.B. Phillips & Joon Y. Park, 1998. "Asymptotics for Nonlinear Transformations of Integrated Time Series," Cowles Foundation Discussion Papers 1182, Cowles Foundation for Research in Economics, Yale University.
- Jes�s Gonzalo & Jean-Yves Pitarakis, 2006.
"Threshold Effects in Cointegrating Relationships,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 68(s1), pages 813-833, December.
- Jesus Gonzalo & Jean-Yves Pitarakis, 2006. "Threshold effects in cointegrating relationships," Economics Working Papers we20060621, Universidad Carlos III, Departamento de Economía.
- Gonzalo, J. & Pitarakis, J., 2005. "Threshold effects in cointegrating relationships," Discussion Paper Series In Economics And Econometrics 0506, Economics Division, School of Social Sciences, University of Southampton.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992.
"Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?,"
Journal of Econometrics,
Elsevier, vol. 54(1-3), pages 159-178.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
- Jaya Krishnakumar & David Neto, 2009. "Estimation and Testing for the Cointegration Rank in a Threshold Cointegrated System," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 2009.01, Institut d'Economie et Econométrie, Université de Genève.
- Barry K. Goodwin & Nicholas E. Piggott, 2001.
"Spatial Market Integration in the Presence of Threshold Effects,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 83(2), pages 302-317.
- Goodwin, Barry K. & Piggott, Nicholas E., 1999. "Spatial Market Integration In The Presence Of Threshold Effects," 1999 Annual meeting, August 8-11, Nashville, TN 21489, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Chang, Yoosoon & Park, Joon Y., 2003. "Index models with integrated time series," Journal of Econometrics, Elsevier, vol. 114(1), pages 73-106, May.
- Bernhard Brümmer & Stephan von Cramon-Taubadel & Sergiy Zorya, 2009. "The impact of market and policy instability on price transmission between wheat and flour in Ukraine," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 36(2), pages 203-230, June.
- Kelvin Balcombe & Alastair Bailey & Jonathan Brooks, 2007. "Threshold Effects in Price Transmission: The Case of Brazilian Wheat, Maize, and Soya Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 308-323.
- Saikkonen, Pentti & Choi, In, 2004. "Cointegrating Smooth Transition Regressions," Econometric Theory, Cambridge University Press, vol. 20(02), pages 301-340, April.
- Mundlak, Yair & Larson, Donald F, 1992. "On the Transmission of World Agricultural Prices," World Bank Economic Review, World Bank Group, vol. 6(3), pages 399-422, September.
- Seo, Myunghwan, 2006. "Bootstrap testing for the null of no cointegration in a threshold vector error correction model," Journal of Econometrics, Elsevier, vol. 134(1), pages 129-150, September.
- Dabin Wang & William G. Tomek, 2007. "Commodity Prices and Unit Root Tests," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 873-889.
- Peter S. Sephton, 2003. "Spatial Market Arbitrage and Threshold Cointegration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 1041-1046.
- Barry K. Goodwin & Matthew T. Holt & Jeffrey P. Prestemon, 2011. "North American Oriented Strand Board Markets, Arbitrage Activity, and Market Price Dynamics: A Smooth Transition Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(4), pages 993-1014.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If references are entirely missing, you can add them using this form.