Threshold cointegration and spatial price transmission when expectations matter
GianCarlo Moschini () and
Fabio Santeramo ()
MPRA Paper from University Library of Munich, Germany
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.
Keywords: Band-TVECM; market integration; price transmission; threshold cointegration; transfer costs (search for similar items in EconPapers)
JEL-codes: C32 F17 Q11 (search for similar items in EconPapers)
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Journal Article: Threshold cointegration and spatial price transmission when expectations matter (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:80202
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