The Cost-Price Squeeze in Agriculture: An Application of Cointegration

Charles Moss

Review of Agricultural Economics, 1992, vol. 14, issue 2, 205-213

Abstract: In the mid and late 1970's, the United States experienced severe inflation. During this period, it was hypothesized that agricultural input prices responded more readily to inflation than agricultural output prices (the cost-price squeeze). This study reexamines the evidence on the cost-price squeeze using recent advances in time series analysis. Preliminary results indicate that prices paid by farmers and prices received by farmers are not cointegrated, suggesting that the cost-price squeeze cannot be ruled out in the long run. The study then tests a multivariate form of the cointegration hypothesis. Results indicate that the divergence between prices paid and prices received is explained by forces outside of agriculture.

Date: 1992
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