Threshold effects in price transmission: The case of Brazilian wheat, maize, and soya prices

Balcombe, K., Bailey, A. and Brooks, J. (2007) Threshold effects in price transmission: The case of Brazilian wheat, maize, and soya prices. American Journal of Agricultural Economics, 89 (2). pp. 308-323. ISSN 0002-9092 doi: 10.1111/j.1467-8276.2007.01013.x

Abstract/Summary

Recent studies into price transmission have recognized the important role played by transport and transaction costs. Threshold models are one approach to accommodate such costs. We develop a generalized Threshold Error Correction Model to test for the presence and form of threshold behavior in price transmission that is symmetric around equilibrium. We use monthly wheat, maize, and soya prices from the United States, Argentina, and Brazil to demonstrate this model. Classical estimation of these generalized models can present challenges but Bayesian techniques avoid many of these problems. Evidence for thresholds is found in three of the five commodity price pairs investigated.