Price transmission analysis: a flexible methodological approach applied to European pork and lamb markets

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 transmited. A great deal of methods have been used to analyze this issue, being the most important: causality tests, impulseresponse functions and cointegration. Normally, these techniques have been individually applied. However, a more rich knowledge of markets performance 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 Lütkepohl (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 short-run dynamic price linkages. The method exposed is applied to the study of spatial pork prices relationships among seven countries in the EU using weekly data from 1988 to 1995.

Local polynomial fitting and spatial price relationships: price transmission in EU pork markets

“…A number of applied analyses on spatial price transmission have focused their attention on food markets (Goodwin and Piggott, 2001;Zanias, 1993). While most previous studies have been based on U.S. (Goodwin and Piggott, 2001) or international data (Dries and Unnevehr, 1990), European food markets have received less attention (Zanias, 1993;Gordon, Hobbs and Kerr, 1993;Sanjuán and Gil, 2001 are a few exceptions). Additionally, to our knowledge, no published study has addressed EU spatial food price relationships after the implementation of the Single Market in 1993, which involved the removal of barriers to trade within the EU.…”

Are current EU cereal prices correlated?

“…As Sanjuán and Gil (2001) underlined, applying one method of analysis may not be flexible enough to account for the complex interactions of prices in separated markets. Nevertheless, our methodology can be seen as a first step in an ongoing analysis.…”

“…This was, for instance, the conclusion of Sanjuán and Gil (2001) for the EU pork and lamb markets in the period 1988-1995 and of Serra et al (2006) in the case of the EU pork market in the period 1994-2004Tangermann (1992) analysed price relationships across Member States in the period 1974-89. He found that differences between prices and price variation in years 1987-89 increased in comparison with years 1974-76 which he interpreted as a sign of market deterioration.…”

“…As explained by Sanjuán and Gil (2001), "a weak degree of integration indicates that, despite the institutional efforts to achieve a unified market, prices are not perfectly transmitted and, therefore, misallocation of resources and distortions of production and distribution might occur. The greater the degree of integration, the more efficient is the interacting markets".…”

Integración espacial en el mercado europeo de aceite de oliva

“…Valgan como ejemplo los estudios sobre el mercado del arroz (Silvapulle y Jayasuriya, 1994), los cereales (Gil et al, 1996), el maíz (Abdulai, 2000), la carne de cerdo y cordero (Sanjuan y Gil, 2001), el algodón (Baffes y Ajwad, 2001), las hortalizas de invernadero (Martínez-Carrasco, 2004), el pescado blanco en Europa (Nielsen, 2005) o el mercado internacional del azúcar (Alonso y Arcila, 2012). Entre los trabajos citados se encuentran las principales aplicaciones del estudio de integración de precios y mercados a productos agroalimentarios en España.…”