Milking The Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria
AbstractWe assess empirically the vertical price transmission mechanism between producer and consumer prices of milk products in Austria using monthly data for the period from January 1996 to February 2010. We consider explicitly the existence of asymmetries in the adjustment to the long-run equilibrium using two different types of threshold vector error correction (VEC) models, where an inaction band in the adjustment to the long-run relationship is defined and alternatively where price dynamics differ between periods of increasing and decreasing trends in causal prices. Our results indicate that asymmetries play an important role in the pass-through of prices for milk products in Austria. We provide statistical evidence concerning the fact that the adjustment only tends to take place when deviations from the equilibrium are large enough. Milk, dairy and cheese products and butter tend to remain in positive margins (measured as deviations from the long-run equilibrium) for the retailers' side. The explicit modeling of nonlinearities does not improve out-of-sample forecasting performance.
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Bibliographic InfoPaper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2010-21.
Date of creation: Jul 2010
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Asymmetric price transmission; threshold models; cointegration; milk prices.;
Other versions of this item:
- Octavio Fernández Amador & Josef Baumgartner & Jesús Crespo Cuaresma, . "Milking the Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria," WIFO Working Papers 378, WIFO.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
This paper has been announced in the following NEP Reports:
- NEP-AGR-2010-09-03 (Agricultural Economics)
- NEP-ALL-2010-09-03 (All new papers)
- NEP-FOR-2010-09-03 (Forecasting)
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