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Price transmission analysis: A flexible methodological approach applied to European hog markets

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  • Ana I. Sanjuan

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  • Jose M. Gil

    ()

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    Abstract

    The study of spatial price relationships contributes to explain markets performance, their degree of integration or isolation, and the speed at which information is transmitted. A great deal of methods have been used to analyze this issue, being the most important: causality tests, impulse- response functions and cointegration. Normally, these techniques have been individually applied. However, a more rich knowledge of the functioning of markets can be extracted when they are jointly applied. In this paper, we try to conjugate these three techniques in a common econometric model. First, Johansen(1988) multivariate cointegration tests are used to determine the number of long-run equilibrium relationships. Cointegration is considered not only as informative about long-run price transmission but also as an essential step in the correct specification of a vector error correction model (VECM) used in the subsequent analysis. Second, Dolado and Lutkepohl(1996) causality tests are used to investigate the lead-lag behaviour among markets. Finally, impulse-response functions are calculated from the VECM estimated in the first stage for evaluating dynamic price linkages. The method exposed is applied to study spatial pork prices relationships among seven countries in the EU from 1988 to 1995. Weekly prices at farm level published by EUROSTAT: "Agricultural Markets" are used.

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    File URL: http://www-sre.wu-wien.ac.at/ersa/ersaconfs/ersa98/papers/180.pdf
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    Bibliographic Info

    Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa98p180.

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    Date of creation: Aug 1998
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    Handle: RePEc:wiw:wiwrsa:ersa98p180

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    1. Dolado, J.J. & Lutkepohl, H., 1994. "Making Wald Tests Work for Cointegrated Var Systems," Papers 9424, Centro de Estudios Monetarios Y Financieros-.
    2. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    3. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    4. Hiro Y. Toda & Peter C.B. Phillips, 1991. "Vector Autoregression and Causality," Cowles Foundation Discussion Papers 977, Cowles Foundation for Research in Economics, Yale University.
    5. Christopher B. Barrett, 1996. "Market Analysis Methods: Are Our Enriched Toolkits Well Suited to Enlivened Markets?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 825-829.
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