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Asymmetric Price Transmission: A Case of Wheat in India

Ranjit Kumar Paul () and Tanmoy Karak ()
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Ranjit Kumar Paul: ICAR-Indian Agricultural Statistics Research Institute, New Delhi 110012, India
Tanmoy Karak: Upper Assam Advisory Center, Tea Research Association, Dikom 786101, India

Agriculture, 2022, vol. 12, issue 3, 1-17

Abstract: In the present paper, horizontal and vertical integration was carried out on the wholesale and retail prices of wheat in the major markets of India. On confirming cointegration between the wholesale and retail prices of wheat in all needs, the vector error correction model (VECM) was applied to find the speed of adjustment in the corresponding price channel. The results revealed that price signals are transmitted across regions, indicating that price changes in one market are consistently related to price changes in markets and can influence the prices in other markets. In addition to studying cointegration, threshold autoregressive (TAR) and Momentum TAR (MTAR) models were applied to test for asymmetric cointegration. Hasen and Seo’s test was used to test for the presence of threshold cointegration. It revealed a significant presence of asymmetric and nonlinear cointegration in many markets. Accordingly, a threshold VECM (TVECM) model with two regimes was applied. The results indicate that the retail price significantly responds to the deviations from the long-run equilibrium compared to the wholesale price.

Keywords: cointegration; error correction model; asymmetric price transmission; threshold cointegration; wheat (search for similar items in EconPapers)
JEL-codes: Q1 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 (search for similar items in EconPapers)
Date: 2022
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