The consumption of ordinary wines in France: the effect of administered prices

Evens Salies

Econometrics from University Library of Munich, Germany

Abstract: Since 1970 nearly all-Mediterranean countries of the EC had undertaken measures to regulate their domestic market for ordinary wines, in the context of constant fall in domestic demand for that product. This paper provides an empirical modelling framework for understanding the effect on the domestic demand for ordinary wines of the orientation price policy in the case of France. The result of a static demand co- integrating equation is compared with those obtained from alternative distributed lag and dynamic versions. It is shown that a non-static specification can result from a consideration of the effects in the short-run on demand responses of the price orientation mechanism. A restricted version of the static equation is tested for constancy using the Hansen's test of parameter instability. We reject parameter stability, which confirms the trend followed by the series of ordinary wines over the sample period and supports the use of alternative specification for the demand equation. Across specifications, demand for ordinary wines is well explained by own-price changes, the price of juice and expenditures, especially in the short run. We also find evidence of habit persistence and a significant difference between unobserved and actual farm to retail spreads. A structural parameter associated to the degree of influence of the price support policy is estimated. Its statistical significance leads to the main conclusion that in the short run the presence of price regulation reduces demand responses after a change in the retail prices of ordinary wines.

Keywords: common agricultural policy; wine market; structural change; co-integration (search for similar items in EconPapers)
JEL-codes: C22 D12 Q11 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2004-06-05
Note: Type of Document - doc; pages: 27. A Rats programme for the Hansen's L_c statistics is available from the author upon request.
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