Spatial Market Integration in the Presence of Threshold Effects

16 Pages Posted: 24 Mar 2020

See all articles by Barry K. Goodwin

Barry K. Goodwin

North Carolina State University

Nicholas Piggott

North Carolina State University

Date Written: May 2001

Abstract

A large body of research has evaluated price linkages in spatially separate markets. Much recent research has applied models appropriate for nonstationary data. Such analyses have been criticized for their ignorance of transactions costs, which may inhibit price adjustments and thus affect tests of integration. This analysis utilizes threshold autoregression and cointegration models to account for a neutral band representing transactions costs. We evaluate daily price linkages among four corn and four soybean markets in North Carolina. Nonlinear impulse response functions are used to investigate dynamic patterns of adjustments to shocks. Our results confirm the presence of thresholds and indicate strong support for market integration, though adjustments following shocks may take many days to be complete. In every case, the threshold models suggest much faster adjustments in response to deviations from equilibrium than is the case when threshold behavior is ignored.

Keywords: market integration, thresholds, transactions costs, Q130, R320

Suggested Citation

Goodwin, Barry K. and Piggott, Nicholas, Spatial Market Integration in the Presence of Threshold Effects (May 2001). American Journal of Agricultural Economics, Vol. 83, Issue 2, pp. 302-317, 2001, Available at SSRN: https://ssrn.com/abstract=3558555 or http://dx.doi.org/10.1111/0002-9092.00157

Barry K. Goodwin (Contact Author)

North Carolina State University

Hillsborough Street
Raleigh, NC 27695
United States

Nicholas Piggott

North Carolina State University ( email )

Agricultural and Resource Economics
Raleigh, NC 27695
United States
919-515-4668 (Phone)
919-515-1824 (Fax)

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