Price Transmission: The Case of the UK Dairy Market
Abstract
:1. Introduction
2. Literature Review
3. Methodology
3.1. Methods
3.1.1. Research Questions and Objectives
- Is there a long-run relationship between producer and retailer pricing?
- What is the direction of causality?
- Is asymmetry present within the UK dairy market?
3.1.2. Sources of Data
3.1.3. Theoretical Framework
3.1.4. Methods of Data Analysis
Unit Root Test
Test with Structural Break (s)
Johansen Cointegration
Error Correction Model (ECM)
Granger Causality
- (1)
- Unidirectional causality—the retailer price causes producer price.
- (2)
- Unidirectional causality—the producer price causes retailer price.
- (3)
- Bilateral causality—retailer and producer prices have the same effect on one another.
- (4)
- No causality—neither retailer nor producer price influence one another.
Threshold Auto-Regressive Model (TAR)
Limitations
4. Results
4.1. Unit Root Test
4.2. Modified Dickey–Fuller Tests, Which Allow for Levels and Trends That Differ across a Single Break Date
4.3. Test with Multiple Breaks
4.4. Johansen Cointegration Test
4.5. Error Correction Model (ECM)
4.6. Granger Causality
4.7. Threshold Auto-Regressive Model (TAR)
5. Discussion
5.1. Is There a Long-Run Relationship between Producer and Retailer Pricing?
5.2. What Is the Direction of Causality?
5.3. Is Asymmetry Present within the UK Dairy Market?
6. Conclusions
6.1. Policy Implications
6.2. Areas for Further Research
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
References
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UK 2009–2019 | ||||||
---|---|---|---|---|---|---|
Augmented Dickey–Fuller | ||||||
Variables | t(ADF) | p-Value | Variables | t(ADF) | p-Value | Critical Value |
LPPI | −2.04 | 0.26 | ΔLPPI | −8.96 *** | 0.00 | −2.88 |
LRPI | −1.40 | 0.57 | ΔLRPI | −10.27 *** | 0.00 | −2.88 |
2009–2019 | ||||||
---|---|---|---|---|---|---|
Variables | PP | p-Value | Variables | PP | p-Value | Critical Value (5%) |
LPPI | −2.03 | 0.27 | ΔLPPI | −8.97 * | 0.00 | −2.88 |
LRPI | −1.44 | 0.55 | ΔLRPI | −10.27 * | 0.00 | −2.88 |
2009–2019 | ||||
---|---|---|---|---|
Variables | LM Stat | Variables | LM Stat | Critical Value (5%) |
LPPI | 0.33 | ΔLPPI | 0.06 | 0.146 |
LRPI | 0.41 | ΔLRPI | 0.10 | 0.146 |
UK 2009–2019 | ||||
---|---|---|---|---|
Variables | t(ADF) | p-Value | Critical Value | Break Date |
ΔLPPI | −10.27 *** | <0.01 | −4.44 | 2017M10 |
ΔLRPI | −10.97 *** | <0.01 | −4.44 | 2015M01 |
Dependent Variable | Break Dates |
---|---|
LRPI and LPPI | 2012M01, 2015M07, 2017M11 |
2009–2019 UK | ||||
---|---|---|---|---|
Unrestricted Cointegration Rank Test (Trace) | ||||
Hypothesized No. of CE(s) | Eigenvalue | Trace Statistic | 0.05 Critical Value | Prob. |
r = 0 *** | 0.21 | 42.42 *** | 35.01 | 0.006 |
r = 1 | 0.08 | 13.46 | 18.39 | 0.213 |
r = 2 | 0.02 | 2.60 | 3.84 | 0.106 |
Unrestricted Cointegration Rank Test (Maximum Eigenvalue) | ||||
Hypothesized No. of CE(s) | Eigenvalue | Max—Eigen Value | 0.05 Critical Value | Prob. |
r = 0 *** | 0.21 | 28.96 *** | 24.25 | 0.011 |
r = 1 | 0.08 | 10.85 | 17.14 | 0.323 |
r = 2 | 0.02 | 2.60 | 3.84 | 0.106 |
Error Correction: | D(LRPIMILK) |
---|---|
ECT (−1) | −0.14 |
[−4.85] |
2009–2019 UK | |
---|---|
Null Hypothesis | F-Stat |
LPPI doesn’t granger cause LRPI | 3.38 *** |
LRPI doesn’t granger cause LPPI | 0.33 |
Dep./Indep. Variable | T | P1 | P2 | P1 = P2 = 0 | P1 = P2 | K |
---|---|---|---|---|---|---|
Retailer/Producer | 0.00 | −0.27 (0.09) | −0.29 (0.09) | 8.42 (6.16) * | 0.03 (3.16) * | 2 |
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Rose, R.; Paparas, D. Price Transmission: The Case of the UK Dairy Market. Commodities 2023, 2, 73-93. https://doi.org/10.3390/commodities2010004
Rose R, Paparas D. Price Transmission: The Case of the UK Dairy Market. Commodities. 2023; 2(1):73-93. https://doi.org/10.3390/commodities2010004
Chicago/Turabian StyleRose, Rachel, and Dimitrios Paparas. 2023. "Price Transmission: The Case of the UK Dairy Market" Commodities 2, no. 1: 73-93. https://doi.org/10.3390/commodities2010004