Spatial Market Efficiency and Policy Regime Change: Seemingly Unrelated Error Correction Model Estimation

Bohl MT, Sul D, Thompson SR


Abstract
We investigate the degree to which the wheat markets of France, Germany, and the United Kingdom are in spatial equilibrium and how reforms to the CAP affect the speed of convergence to the long-run relationship. Due to the interrelationship among these markets and the nonstationarity of our data we introduce a seemingly unrelated regression-augmented Dickey-Fuller and error correction methodology. We argue this methodology is more efficient than ordinary cointegration and error correction models. Empirically we find strong evidence of efficient spatial markets and conformity to the law of one price. Market liberalization reforms in the EU increased the comovement of domestic and world wheat prices; our post-Uruguay Round price transmission elasticity was 0.183.

Keywords
error correction model law of one price policy regime change spatial market equilibrium unit-root long-run integration cointegration



Publication type
Research article (journal)

Peer reviewed
Yes

Publication status
Published

Year
2002

Journal
American Journal of Agricultural Economics

Volume
84

Issue
4

Start page
1042

End page
1053

Language
English

ISSN
0002-9092

DOI