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Disentangling non-linearities in the long- and short-run price relationships: An application to the U.S. hog/Pork supply chain

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  • Gervais, Jean-Philippe

Abstract

Increased concentration at the retail, food processing and farm input manufacturing levels has brought increased attention to patterns in retail-to-farm price spreads. Most studies documenting asymmetric price transmission focus on non-linear error correction processes, as opposed to the current study which analyzes potential non-linearities in the long-run relationship between the farm and retail prices. The null hypothesis of non-linearity in the long-run relationship between farm and retail prices in the U.S. hog/pork supply chain is rejected in favor of a Smooth Transition Cointegration (STC) framework. The STC framework predicts downward price stickiness in retail prices. The predicted residuals of the non-linear model are used to investigate whether it is possible to disentangle non-linearity in the long-run price relationship from non-linearity in the adjustment towards the long-run equilibrium. The results underline the importance of testing for linearity in the long-run price relationship before modeling non-linearity in short-run dynamics.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7743.

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Date of creation: 10 Apr 2007
Date of revision: 15 Jan 2008
Handle: RePEc:pra:mprapa:7743

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Keywords: Smooth transition cointegration; farm to retail price transmission; linear cointegration;

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Citations

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Cited by:
  1. Abbassi, Abdessalem & Tamini, Lota D. & Gervais, Jean-Philippe, 2011. "Do inventories have an impact on price transmission? Evidence from the Canadian chicken industry," MPRA Paper 30868, University Library of Munich, Germany.
  2. Holst, Carsten & von Cramon-Taubadel, Stephan, 2013. "Trade, market integration and spatial price transmission on EU pork markets following Eastern enlargement," DARE Discussion Papers 1307, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
  3. Götz, Linde & Qiu, Feng & Gervais, Jean-Philippe & Glauben, Thomas, 2013. "Export Restrictions and Multiple Spatial Price Equilibria: Export Quotas for Wheat in Ukraine," 53rd Annual Conference, Berlin, Germany, September 25-27, 2013 156135, German Association of Agricultural Economists (GEWISOLA).
  4. Gotz, Linde & Qiu, Feng & Gervais, Jean-Philippe & Glauben, Thomas, 2012. "Export Restrictions And Multiple Spatial Price Equilibria When International Prices Spike: Export Quotas For Wheat In Ukraine," 2012: New Rules of Trade?, December 2012, San Diego, California 143179, International Agricultural Trade Research Consortium.

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