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Threshold cointegration and spatial price transmission when expectations matter

Sergio Lence, GianCarlo Moschini () and Fabio Santeramo ()

Agricultural Economics, 2018, vol. 49, issue 1, 25-39

Abstract: We examine the performance of the threshold cointegration approach, specifically Band†TVECM, to price transmission analysis in an explicit context where trade decisions are made based on expectation of final prices, because trade takes time. We find that, following a standard inference strategy, a large portion of three†regime cases are not identified as such. Results show that transfer costs are systematically underestimated, particularly in three†regime models. The speed of price transmission is also biased in three†regime models. Furthermore, inferences about occurrence of trade are poor, with estimated models suggesting far lower market integration than is true in the data†generating process.

Date: 2018
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https://doi.org/10.1111/agec.12393

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Working Paper: Threshold cointegration and spatial price transmission when expectations matter (2017) Downloads
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