Asymmetric Farm-Retail Price Transmission: A New Test

摘要

This paper presents a method to test for asymmetric farm-retail price transmission by testing for asymmetric error-correction behaviour in a bivariate vector error correction model (VECM) consisting of the producer price and the retail price. Our test is based on the idea that by lowering the frequency of the data, the asymmetric error-correction behaviour converges to a symmetric model. Consequently, low-frequency data allow for cointegrating vector estimation in a symmetric error-correction model. Next, this cointegrating vector is used in the VECM of the same prices at higher frequencies that allow for asymmetric error-correction by which we can test for asymmetric price transmission. We apply our method to the relationship between the US producer price of tomatoes and the retail prices of tomatoes in Atlanta and Los Angeles. For Atlanta we find that producer prices are eight percent lower as a consequence of the asymmetry in price transmission. In Los Angeles asymmetry is not significant.