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Price Dynamics In The U.S. Fiber Markets:Its Implications For Cotton Industry

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  • Fadiga, Mohamadou L.
  • Mohanty, Samarendu
  • Chaudhary, Jagadanand
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    Abstract

    The paper examines the price dynamics in the U.S. fiber market using error correction version of Granger causality test. Monthly prices are used to examine short-run and long-run price relationships simultaneously. Before specifying causal equations, time series properties of the prices are tested and are found to be first difference stationary and cointegrated. The causality results suggest weak lead-lag relationship between cotton and polyester prices in either direction. However, strongest relation is instantaneous feedback (within a month) between cotton and polyester prices. It may be interpreted from these results that any shock to the equilibrium relationships is mostly restored within a month. In addition, highly significant error correction terms in cotton and polyester equations also suggest the absence of distinct price leader which means both prices respond to restore equilibrium relationships.

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    File URL: http://purl.umn.edu/35071
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    Bibliographic Info

    Paper provided by Southern Agricultural Economics Association in its series 2003 Annual Meeting, February 1-5, 2003, Mobile, Alabama with number 35071.

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    Date of creation: 2003
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    Handle: RePEc:ags:saeatm:35071

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    Keywords: Production Economics;

    References

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    1. Barry K. Goodwin & Ted C. Schroeder, 1991. "Price Dynamics in International Wheat Markets," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 39(2), pages 237-254, 07.
    2. Brorsen, B Wade & Chavas, Jean-Paul & Grant, Warren R, 1985. "A Dynamic Analysis of Prices in the U.S. Rice Marketing Channel," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 362-69, October.
    3. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
    4. Darren Hudson & Emmett Elam & Don Ethridge & Jeff Brown, 1996. "Price information in Producer markets: An evaluation of futures and spot cotton price relationships in the southwest region using cointegration," Agribusiness, John Wiley & Sons, Ltd., vol. 12(4), pages 363-369.
    5. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    6. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
    7. W. S. Chao & J. Buongiorno, 2002. "Exports and growth: a causality analysis for the pulp and paper industries based on international panel data," Applied Economics, Taylor & Francis Journals, vol. 34(1), pages 1-13.
    8. David A. Pierce & Larry D. Haugh, 1977. "Causality in temporal systems: characterizations and a survey," Special Studies Papers 87, Board of Governors of the Federal Reserve System (U.S.).
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