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Do fluctuations in wine stocks affect wine prices?

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  • Bukenya, James O.
  • Labys, Walter C.
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    Abstract

    Globalization and the expansion of world wine trade have caused a wine boom that together with agricultural subsidies have made fluctuations in wine inventories a more critical issue. In the case of domestic and international wine markets, little is known about intertemporal inventory adjustments and how they relate to prices. We investigate possible dynamic relations between these variables in a time series context, so as to better understand how wine producers and traders can face growing price and financial volatility. Countries for whom meaningful data series could be constructed include: Argentina, Australia, France, Germany, Italy, Spain and the United States. The study begins by examining the empirical evidence on inventories in these markets and their relation to prices. Stationarity tests are first performed to assess likely trends in the wine inventory and price variables. Cointegration analysis follows to analyze the stationary relationships between these variables. To explain the dynamics of this relationship, vector autoregressions have been estimated and impulse functions are computed to measure possible delays between variable reactions.

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    File URL: http://purl.umn.edu/37317
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    Bibliographic Info

    Paper provided by American Association of Wine Economists in its series Working Papers with number 37317.

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    Date of creation: Oct 2007
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    Handle: RePEc:ags:aawewp:37317

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    Web page: http://www.wine-economics.org
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    Related research

    Keywords: Agribusiness; Demand and Price Analysis; International Development; International Relations/Trade;

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    1. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
    2. Robert S. Pindyck, 1994. "Inventories and the Short-Run Dynamics of Commodity Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 141-159, Spring.
    3. Eichenbaum, Martin S., 1984. "Rational expectations and the smoothing properties of inventories of finished goods," Journal of Monetary Economics, Elsevier, vol. 14(1), pages 71-96, July.
    4. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
    5. Wright, Brian D & Williams, Jeffrey C, 1982. "The Economic Role of Commodity Storage," Economic Journal, Royal Economic Society, vol. 92(367), pages 596-614, September.
    6. Hakan Berument & Seyit Mümin Cilasun & Yýlmaz Akdi, 2006. "The Relationship Between Different Price Indices : Evidence from Turkey," Departmental Working Papers 0603, Bilkent University, Department of Economics.
    7. Otani, Kiyoshi, 1983. "The Price Determination in the Inventory Stock Market: A Disequilibrium Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 709-19, October.
    8. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
    9. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
    10. Williams,Jeffrey C. & Wright,Brian D., 1991. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521326162, October.
    11. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    12. Newbery, David M G & Stiglitz, Joseph E, 1982. "Optimal Commodity Stock-piling Rules," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 403-27, November.
    13. Kawai, Masahiro, 1983. "Price Volatility of Storable Commodities under Rational Expectations in Spot and Futures Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(2), pages 435-59, June.
    14. Orden, David, 1982. "Preliminary Empirical Evidence Concerning An Asset Theory Model Of Markets For Storable Agricultural Commodities," Staff Papers 14087, University of Minnesota, Department of Applied Economics.
    15. Larson, Donald Frederick & DEC, 1994. "Copper and the negative price of storage," Policy Research Working Paper Series 1282, The World Bank.
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