Abstract
In this paper asymmetric price transmission mechanism and nonlinear adjustment between producer and retail prices of milk were examined in Zanjan Province of Iran. For this purpose, a Two-Regime Threshold Vector Error Correction Model (TVECM) and a Sup-LM Test developed by Hansen and Seo (2002) were employed for checking presence of a threshold effect. Application of unit root tests indicated that both wholesale and retail prices are I (1), and Johansen test verified cointegration of the series in the long-run. Results of the Sup-LM test confirmed threshold adjustment of product price towards the long-run equilibrium. Furthermore, results obtained from TVECM revealed that the coefficient of ECT is significant only in the first regime of retailing equation implying that retailers significantly respond to the decreasing deviations from the long-run equilibrium. While adjustment coefficient is not significant for wholesale equation in both regimes to imply that there is not significant inclination to react to deviations from the long-run equilibrium among the wholesalers despite the retailers.
Highlights
IntroductionAbdulai (2002) argued that a major flaw of Aguiar and Santana (2002) studied price transprevious studies on asymmetric price transmis- mission from farm to retail in Brazil and estision in the food marketing chain is that they fail mated two different elasticities of price to take into account the possibility of the pres- transmission; one for price increases and anence of equilibrium relationship between any other for price decreases
Study of price transmission helps to under- was only partial, which means that both farm stand causes of changes in prices, necessary to price increases and decreases are transmitted address root causes
The objective of this study was to examine the mechanism of asymmetric price transmission and to discuss nonlinear adjustments between the wholesale and retail prices of milk in Zanjan province of Iran
Summary
Abdulai (2002) argued that a major flaw of Aguiar and Santana (2002) studied price transprevious studies on asymmetric price transmis- mission from farm to retail in Brazil and estision in the food marketing chain is that they fail mated two different elasticities of price to take into account the possibility of the pres- transmission; one for price increases and anence of equilibrium relationship between any other for price decreases. They found that price price series being examined. The Cointegration increases are more rapid and fully transmitted and its corresponding Error Correction Models than price decreases
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