Asymmetric Price Transmission in Indonesia's Wheat Flour Market

32 Pages Posted: 14 Aug 2014

Date Written: March 1, 2014

Abstract

Data indicate that its domestic price in Indonesia has been increasing regardless of movements in the international price of wheat. A test for asymmetric price transmission from international wheat to domestic wheat flour markets is conducted using an error correction model and find the presence of asymmetric price transmission. The upward adjustment in the domestic price of wheat flour is much faster than its adjustment downward when it deviates from long-run equilibrium. Our results are robust to use of disaggregated data as well as to inclusion of additional of control variables such as prices of other inputs. We argue that asymmetric transmission occurs due to market concentration of wheat flour milling. We offer some policy suggestions for correcting these.

Keywords: spatial integration, asymmetric price transmission, monopolistic competition, commodity prices, agricultural market, wheat flour

Suggested Citation

Varela, Gonzalo and Taniguchi, Kiyoshi, Asymmetric Price Transmission in Indonesia's Wheat Flour Market (March 1, 2014). Asian Development Bank Economics Working Paper Series No. 394, Available at SSRN: https://ssrn.com/abstract=2479704 or http://dx.doi.org/10.2139/ssrn.2479704

Gonzalo Varela (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Kiyoshi Taniguchi

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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