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

12 Pages Posted: 17 Mar 2003

See all articles by Stanley R. Thompson

Stanley R. Thompson

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics

Martin T. Bohl

University of Muenster

Donggyu Sul

Independent

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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.

Suggested Citation

Thompson, Stanley R. and Bohl, Martin T. and Sul, Donggyu, Spatial Market Efficiency and Policy Regime Change: Seemingly Unrelated Error Correction Model Estimation. Available at SSRN: https://ssrn.com/abstract=366506

Stanley R. Thompson (Contact Author)

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

2120 Fyffe Rd
Columbus, OH 43210-1067
United States

Martin T. Bohl

University of Muenster ( email )

Schlossplatz 2
D-48149 Muenster, D-48149
Germany

Donggyu Sul

Independent

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