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

Octavio Fernández-Amador, Josef Baumgartner and Jesús Crespo-Cuaresma ()
Authors registered in the RePEc Author Service: Jesus Crespo Cuaresma

Working Papers from Faculty of Economics and Statistics, Universität Innsbruck

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.

Keywords: Asymmetric price transmission; threshold models; cointegration; milk prices. (search for similar items in EconPapers)
JEL-codes: C32 L11 Q13 (search for similar items in EconPapers)
Pages: 24
Date: 2010-07
New Economics Papers: this item is included in nep-agr and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:inn:wpaper:2010-21

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