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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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Author Info
Gervais, Jean-Philippe

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

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Find related papers by JEL classification:
Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

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