Distinguishing between Equilibrium and Integration in Markets Analysis
23 Pages Posted: 14 Oct 1999
There are 3 versions of this paper
Distinguishing between Equilibrium and Integration in Markets Analysis
Distinguishing between Equilibrium and Integration in Markets Analysis
Distinguishing between Equilibrium and Integration in Markets Analysis
Date Written: August 1999
Abstract
This paper introduces a new market analysis methodology based on maximum likelihood estimation of a mixture distribution model incorporating price, transfer cost, and trade flow data. Not only does this method obviate statistical problems associated with conventional price analysis methods, it also permits differentiation between market integration and competitive market equilibrium. The model generates estimates of the frequency of alternative regimes, combinations of which provide useful, intuitive measures of intermarket tradability, competitive market equilibrium, perfect integration, segmented equilibrium, and segmented disequilibrium. An application to trade in soybean meal among Pacific Rim economies demonstrates the usefulness of the method.
JEL Classification: L10
Suggested Citation: Suggested Citation
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