Vertical Price Transmission Mechanism in Iran's Egg Market: Using two-regimes Threshold Vector Error Correction Model

مجله اقتصاد و توسعه کشاورزی

Article 7, Volume 27, Issue 2, July 2013, Pages 144-155   

Document Type: Research Article

DOI: 10.22067/jead2.v0i0.26413

Authors

Z. Rasooli; M. Ghahremanzadeh^*

Department. of Agricultural Economics, Faculty of Agriculture University of Tabriz

Abstract

In this paper, nonlinear adjustments and price transmission mechanism between the two levels of wholesale and retail for the egg market has been examined under the threshold vector error correction model (TVECM) framework using Hansen and Seo (2002)’s two-regimes). The unit root test showed that both wholesale and retail egg price series were integrated of order one . The Johansen co-integration test indicated that in the long term, the prices at both ends of marketing chain were quite integrated, i.e. any change in the price of one level is fully transmitted to the other level. In the next step, the SupLM test confirmed threshold adjustment between wholesale and retail series towards the long-run equilibrium. The estimated TVECM (2) showed that the error correction coefficients of retail price equation were significant in both regimes and its value in the first regime was larger than the second regime, while they were insignificant for the wholesale price equation. This indicates that when deviations in the long-run equilibrium occur, wholesalers are reluctant to react, but retailers react to both positive and negative shocks. The findings revealed that the reaction rate is much higher for the positive shocks then the negative ones. The short-run dynamics are almost the same in both regimes; however the speed of adjustment in the second regime is higher than the first regime.

Keywords

Asymmetric price transmission; Hansen and Seo approach; threshold vector error correction model; egg market; Iran