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Milking The Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria

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  • Octavio Fern?ndez-Amador

    ()

  • Josef Baumgartner

    ()

  • Jes?s Crespo-Cuaresma

    ()

Abstract

We assess empirically the vertical price transmission mechanism between producer and consumer prices of milk products in Austria using monthly data for the period from January 1996 to February 2010. We consider explicitly the existence of asymmetries in the adjustment to the long-run equilibrium using two different types of threshold vector error correction (VEC) models, where an inaction band in the adjustment to the long-run relationship is defined and alternatively where price dynamics differ between periods of increasing and decreasing trends in causal prices. Our results indicate that asymmetries play an important role in the pass-through of prices for milk products in Austria. We provide statistical evidence concerning the fact that the adjustment only tends to take place when deviations from the equilibrium are large enough. Milk, dairy and cheese products and butter tend to remain in positive margins (measured as deviations from the long-run equilibrium) for the retailers' side. The explicit modeling of nonlinearities does not improve out-of-sample forecasting performance.

Suggested Citation

  • Octavio Fern?ndez-Amador & Josef Baumgartner & Jes?s Crespo-Cuaresma, 2010. "Milking The Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria," Working Papers 2010-21, Faculty of Economics and Statistics, University of Innsbruck.
  • Handle: RePEc:inn:wpaper:2010-21
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    Cited by:

    1. Bittmann, Thomas & Holzer, Patrick & Loy, Jens-Peter, 2016. "Seasonal Cost Pass-Through In The German Milk Market," 56th Annual Conference, Bonn, Germany, September 28-30, 2016 244779, German Association of Agricultural Economists (GEWISOLA).
    2. Bakucs, Lajos Zoltan & Falkowski, Jan & Ferto, Imre, 2012. "What causes asymmetric price transmission in agro-food sector? Meta-analysis perspective," 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK 134765, Agricultural Economics Society.
    3. N. N., 2016. "WIFO-Monatsberichte, issue 3/2016," WIFO Monatsberichte (monthly reports), WIFO.
    4. N. N., 2016. "WIFO-Monatsberichte, Heft 12/2016," WIFO Monatsberichte (monthly reports), WIFO.
    5. Fabio Rumler, 2012. "The Pass-Through of Commodity Prices to Consumer Prices of Selected Products," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 92-104.
    6. Ioanna Reziti, 2014. "Price transmission analysis in the Greek milk market," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 64(4), pages 75-86, October-D.
    7. Holm, Thore & Loy, Jens-Peter & Steinhagen, Carsten, 2012. "Bio Auch Bei Der Preissetzung: Konsummilch In Deutschland," 52nd Annual Conference, Stuttgart, Germany, September 26-28, 2012 137159, German Association of Agricultural Economists (GEWISOLA).
    8. Michael Böheim & Dieter Pennerstorfer & Franz Sinabell, 2016. "Structural Adjustment in Austrian Food Retailing. Impact on the Supply Side of the Market and Implications From the Viewpoint of Competition Economics," WIFO Monatsberichte (monthly reports), WIFO, pages 171-183.
    9. Carlos Usabiaga & Diego Romero-Ávila, 2012. "New Disaggregate Evidence on Spanish Inflation Persistence," EcoMod2012 3800, EcoMod.
    10. Lorena de Oliveira, Maria de Fátima & da Silva Carvalho, Maria Leonor & Raquel Lucas, Maria & Damião Henriques, Pedro & Mora Peixe, Fernanda, 2015. "Price Transmission on the Milk Portuguese Market," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 16(1), January.
    11. Loy, Jens-Peter & Weiss, Christoph R. & Glauben, Thomas, 2016. "Asymmetric cost pass-through? Empirical evidence on the role of market power, search and menu costs," Journal of Economic Behavior & Organization, Elsevier, pages 184-192.
    12. Diego Romero-Ávila & Carlos Usabiaga, 2012. "Disaggregate evidence on Spanish inflation persistence," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 3029-3046, August.
    13. Seyed Safdar Hosseini & Zahra Alizadeh Khalifehmahaleh, 2013. "Market Structure and Price Adjustment in the Iranian Tea Market," Iranian Economic Review, Economics faculty of Tehran university, vol. 18(2), pages 1-19, spring.
    14. Maria de Fátima Oliveira & Maria Leonor da Silva Carvalho & Maria Raquel Lucas & Pedro Damião Henriques, 2014. "Price Transmission in the Milk Portuguese Market," CEFAGE-UE Working Papers 2014_19, University of Evora, CEFAGE-UE (Portugal).
    15. Loy, Jens-Peter & Holm, Thore & Steinhagen, Carsten, 2012. "Vertical Price Transmission In Differentiated Product Markets: A Disaggregated Study For Milk And Butter," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 123284, Agricultural and Applied Economics Association.
    16. Loy, Jens-Peter & Holm, Thore & Steinhagen, Carsten & Glauben, Thomas, 2014. "Cost Pass-Through In Differentiated Product Markets: A Disaggregated Study For Milk And Butter," 88th Annual Conference, April 9-11, 2014, AgroParisTech, Paris, France 169762, Agricultural Economics Society.
    17. Franz Sinabell, 2016. "Austria 2025 – Perspectives for Austrian Agriculture Until 2025," WIFO Monatsberichte (monthly reports), WIFO, pages 895-904.

    More about this item

    Keywords

    Asymmetric price transmission; threshold models; cointegration; milk prices.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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