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Nonlinear Price Transmission in Wheat Export Prices

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  • A Ghoshray

    (University of Bath)

Abstract

This paper attempts to model the price relationship between the major exporters of wheat. The motivation of such research is to reveal whether prices are integrated and whether potential nonlinearities in price adjustment exist. Given the perception that transactions costs may be highly variable in the wheat market, the paper aims to test for the presence of cointegration in the presence of smooth transition adjustment. The results conclude that the further the prices deviate from each other, the larger will be the arbitrage and substitution that will drive the prices close to each other. However, the results suggest that the arbitrage will be limited as the various wheat prices employed in this study may be linked to highly variable transactions costs or some other form of imperfect competition.

Suggested Citation

  • A Ghoshray, 2009. "Nonlinear Price Transmission in Wheat Export Prices," Department of Economics Working Papers 11/09, University of Bath, Department of Economics.
  • Handle: RePEc:eid:wpaper:15967
    as

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    File URL: https://purehost.bath.ac.uk/ws/files/356259/1109.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. M. R. Barassi & A. Ghoshray, 2007. "Structural Change and Long-run Relationships between US and EU Wheat Export Prices," Journal of Agricultural Economics, Wiley Blackwell, vol. 58(1), pages 76-90, February.
    3. Bob Baulch, 1997. "Transfer Costs, Spatial Arbitrage, and Testing for Food Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 477-487.
    4. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 862-879, August.
    5. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2006. "Testing For Cointegration In Nonlinear Smooth Transition Error Correction Models," Econometric Theory, Cambridge University Press, vol. 22(2), pages 279-303, April.
    6. Kelvin Balcombe & Alastair Bailey & Jonathan Brooks, 2007. "Threshold Effects in Price Transmission: The Case of Brazilian Wheat, Maize, and Soya Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 308-323.
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    More about this item

    Keywords

    price adjustment; estar; wheat; cointegration;

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