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Making the world market price endogenous within the AGMEMOD modelling framework: an econometric solution

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  • Listorti, Giulia
  • Esposti, Roberto

Abstract

This 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 Info

Paper provided by European Association of Agricultural Economists in its series 107th Seminar, January 30-February 1, 2008, Sevilla, Spain with number 6659.

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Date of creation: 2008
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Handle: RePEc:ags:eaa107:6659

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Keywords: Price Formation and Transmission; Commodity Market Models; VECM; Demand and Price Analysis; Research Methods/ Statistical Methods; Q110; Q170;

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  1. Ghoshray, Atanu & Lloyd, Tim A., 2003. "Price Linkages In The International Wheat Market," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25852, International Association of Agricultural Economists.
  2. M. R. Barassi & A. Ghoshray, 2007. "Structural Change and Long-run Relationships between US and EU Wheat Export Prices," Journal of Agricultural Economics, Wiley Blackwell, vol. 58(1), pages 76-90, 02.
  3. van Tongeren, Frank & van Meijl, Hans & Surry, Yves, 2001. "Global models applied to agricultural and trade policies: a review and assessment," Agricultural Economics, Blackwell, vol. 26(2), pages 149-172, November.
  4. Esposti, Roberto & Lobianco, Antonello, 2005. "Modelling the Impact of 2003 CAP Reform on Crop Production: The case of Durum Wheat in Italy," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 6(1), January.
  5. Fackler, Paul L. & Goodwin, Barry K., 2001. "Spatial price analysis," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 17, pages 971-1024 Elsevier.
  6. Benjamin, Catherine & Gueguen, Chantal & Houee, Magalie, 2003. "World Cereals Markets Under Alternative Common Agricultural Policy Reforms," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25913, International Association of Agricultural Economists.
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