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Dynamic Relationships Among Selected U.S. Commodity-Based, Value Added Markets: Applying Directed Acyclic Graphs to a Time Series Model

Author

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  • Babula, Ronald A.
  • Bessler, David A.
  • Payne, Warren S.

Abstract

This paper demonstrates the application of a recently developed methodology, the combination of directed acyclic graphs (DAGs) with Bernanke structural vector autoregression (VAR) models, to model a system of U.S. commodity-related and value-added markets. As an example, the paper applies this methodology to a quarterly system of U.S. markets: the wheat market and a set of downstream milling and bakery markets that use wheat as an input. Analyses of the model's impulse response simulations and forecast error variance decompositions provide updated estimates of market elasticity parameters that drive these markets, and updated policy-relevant information on how these quarterly markets run and dynamically interact. Results suggest that movements in commodity-based markets strongly influence each other, although most of these effects occur in the long run beyond a single crop cycle. The paper illuminates how important U.S. food prices respond to wheat farm market shocks in price and quantity.

Suggested Citation

  • Babula, Ronald A. & Bessler, David A. & Payne, Warren S., 2003. "Dynamic Relationships Among Selected U.S. Commodity-Based, Value Added Markets: Applying Directed Acyclic Graphs to a Time Series Model," Working Paper ID Series 15879, United States International Trade Commission, Office of Industries.
  • Handle: RePEc:ags:uitcoi:15879
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    File URL: http://purl.umn.edu/15879
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    References listed on IDEAS

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    1. Granger, C. W. J. & Newbold, Paul, 1986. "Forecasting Economic Time Series," Elsevier Monographs, Elsevier, edition 2, number 9780122951831 edited by Shell, Karl.
    2. Babula, Ronald A. & Bessler, David A., 1989. "Farmgate, Processor, and Consumer Price Transmissions in the Wheat Sector," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 3.
    3. Kloek, Tuen & van Dijk, Herman K, 1978. "Bayesian Estimates of Equation System Parameters: An Application of Integration by Monte Carlo," Econometrica, Econometric Society, vol. 46(1), pages 1-19, January.
    4. David A. Bessler, 1984. "An Analysis of Dynamic Economic Relationships: An Application to the U.S. Hog Market," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 32(1), pages 109-124, March.
    5. Goodwin, Harold L., Jr. & McKenzie, Andrew M. & Djunaidi, Harjanto, 2003. "Which Broiler Part is the Best Part?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35(03), December.
    6. David A. Bessler & Derya G. Akleman, 1998. "Farm Prices, Retail Prices, and Directed Graphs: Results for Pork and Beef," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(5), pages 1144-1149.
    7. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    8. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
    9. Goodwin, H.L. & McKenzie, Andrew M. & Djunaidi, Harjanto, 2003. "Which Broiler Part is the Best Part?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 35(03), pages 483-495, December.
    10. Sneha Jonnala & Stephen Fuller & David Bessler, 2002. "A GARCH Approach to Modelling Ocean Grain Freight Rates," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 4(2), pages 103-125, June.
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    Cited by:

    1. VAN BINH, Tu & DUMONT, Michel, 2008. "A fishing expedition in the Mekong Delta: Market volatility and price substitutes for Vietnamese fresh water fish," Working Papers 2008002, University of Antwerp, Faculty of Applied Economics.

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