Making the world market price endogenous within the AGMEMOD modelling framework: an econometric solution
AbstractThis paper aims at making the world price endogenous within the AGMEMOD modelling approach. This approach constructs country-level commodity market models where supply and demand sides are equalized on the basis of the observed domestic prices. These prices are endogenous as they depend (price transmission equation) on a EU key-price, which is, in turn, endogenously determined by the world price (price formation equation). The world prices, however, are assumed to be exogenous. To make the world price endogenous, we propose a system of equations where the EU key-price and the world price are simultaneously determined. This system of equations, written in a dynamic and error-correction form (VECM), substitutes the usual price-formation equation, while price transmission across EU countries remains unaffected. This approach is here applied to the case of soft wheat and results compared to those obtained by using the conventional AGMEMOD approach.
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Bibliographic InfoPaper provided by European Association of Agricultural Economists in its series 107th Seminar, January 30-February 1, 2008, Sevilla, Spain with number 6659.
Date of creation: 2008
Date of revision:
Price Formation and Transmission; Commodity Market Models; VECM; Demand and Price Analysis; Research Methods/ Statistical Methods; Q110; Q170;
Find related papers by JEL classification:
- Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
- 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-2008-11-25 (All new papers)
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