I JVorkin Papers in - AgEcon Searchageconsearch.umn.edu/bitstream/6847/2/wp930001.pdf · It is t~~ poHcy of Cornell U;)!ver$ify ocHvely to support ~quaHty of e!iu(:ottO?lo! ond employment'opportunity

JVorkin Papers inAGRIC[TLTVRAL ECONOlllICS

January 1993 93-1

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EMPIRJ·CAL ANALYSIS OF AG:RICULTURAL COMMODITY PRICES:

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William G. Tomek and Robert J. Myers

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A VIEWPOINT

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j?epartment of Agriculturel Economics) !New York State College of Agriculture and Ufe Scienc~s I

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It is t~~ poHcy of Cornell U;)!ver$ify ocHvely to support ~quaHty

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denied employment Of! th~ basis of ony iegaHy prohibited discrimination involving, bur not limited to, such roch')!"s as mee,color" creed, religiOi"!, noticnQl Of ethnic origin, se~, age orhandkcp. The University is committed to th~ I'rHJintenom:e ofOffin'l"H:tiv;e adion programs which wm assure fhe continuation

of SU(~ eqfJO~ity of o~pijrhmHyo

EMPIRICAL ANALYSIS OF AGRICULTURAL COMMODITY PRICES:

AVIEWPQINT

William G. Tomek and .Robert J. Myers

Abstract

NumeroUs m,odels of price-demand~suWIybehavior in agriculturalmarkets have been proposed and estimated. 'The literature contatnsvaluable contributions, but the cumulative effect is somewhat disappointing.This paper appraises the status of the price analysis Iiteratur~ and makessuggestions for impr!Jving the ,quality o,(empiriqL1 re,su!ts. Both structuraland t:~e~eriesfitodeIsare ~p:praised.

Acknowledgements

Tomek is Professor, Department of Agricultural Economics,Cornell University and Myers is Associate Professor, Department ofAgricultural Econottlics, Michigan State University. David Bessler, StevenHanson, Marvin Hayenga, and Matthew Holt provided helpful comme'nts~which we gratefully acknowledge. This paper, however, is our viewpoint.A shorter version is published with the same title in the Review ofAgricultural Economics, January 1993.

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Contents

Introduetion

Structural Models

Modeling the Price Determination Process

1

1

1

S~p~~~~ 4

Demand Analysis 10

,Cha{>act~ristics- Models 14

Mar~et~~g Margins 15

Storage and Price 'Behavior 18

Time-Series Models 20

Time-Series Properties of Commodity Prices 20

Stochastic Trends 20

Comovements in Commodity ~rice Series 22

time~Varying Volatility and Excess Kurtosis 24

Cash Versus Futures Price Behavior 25

Implications for Structural Models 26

Fnf;ecasting 28

Causality Tests 29

Hypothesis Generation 30

Identification in Multivariate Time-Series Models 30

Toward Improved Price Analyses 33

References 36

l'

,~~ .•:There' are:·' il0 ' fOljrltilas or models -for sc:i(ilt~~fi6'"

" ';' aiS~ovefjf~:j1 :,(R:eckm(#1, p. 883»

Introduction

The pione~rs.of agricultural. pr:ice analysi~ hoped to estimateeco~ometric ':ttlanonships "wfii~lt could be' used' for foreeas~ing' ,and policy$alysis, henc~; :fof. de'cision-rti~ng: (~~g~; :W~ugh' 1964, pp~ 1.;10). It h~"

beco~e cleai(~q:~eV~f(t~aJ ~h~:::QP~$i~1tIof ,:t~~ :·p~t, m9,st: btvt~nl:pet~d:1>:Y~e'; ::reaU1Y:: .,(}f:<:th~ 'present:',·, :El11pirt~J:, te~tilts '~e" ·~~nsitiy:¢· ·:tQ, .(ciftell

iiaJf{~!@,jt:~~~~:;;~~~lj·empit!¢al,·te$ults can ~l1:oh:b€fcP:~ltm~d(T~$'ek, 199:~). . ,

~ >. > ,,~ /: ,,' ., :.~:;,.:-; >~.~ : '> - > ~:.': > > ,.: >' ,~~= >~,'-~ >

,:'Cd~~4u:end~~>~e', -b.eli~v:e ;:tb~t,,·tbe qU3:Ii"ty' of 'many- empific~l :'prlceanalyses, ''IS· '1~1: "doubt 'Nonetheless, ,nlitme:rous' innovativ~ and "~nsightful'results ·'have'·:been';obtaijled~ ·;···Thus, ··thif:paper tries' to' provide a ;balan~ed

prQgr~s§ ~P~ft ~n,·the c'9rrent state 6f';tne fieJd~' We <(i:p·:this ,by organizing-'the .:p~pe=r: 'info 'tWo" :s~.€tions:; one ort~ strucwrlil ~ddelS::>~,d ~o~~" 01;1 :UDle...serfes"'>m6dels;'" e'fuphgi2:1Dg ,'tim~:"seties" :'p,ropeiues ·'Of'agrici.llturaf:· prf¢~s.This categorization cove·rs many, but not all of -the' approaches:" tocommodity price analysis.

. , The'j)~pet :~SQ>j?t9Vides:',a ViewpQ~~f ·:on· ,~how . t:Q:: begit? .t~e ,~aslc 'oftlnproVilJ~;·:tne-:j};~~ity·of ;emp:ifi~lresuHs. : 'One, 'pap¢t 'C~{)t'Tpt:QWde ablueprint, -fors61vihg all '-';0£ the 'pFQb~ems'·: of ,empirical, 'prlee /'anal~Sis;'

paniC1;llar~y when differ~rit <kinds pf solutioJ;lS 'ate talled for in diffefent'sitU~tiOHS~:· H:e1jc~~:,we :,:c6ntent~~~e 'on' providing con~tfuctit~ cdticistnS· ·:3.:#dSy1ith~ses~," 'Om :g¢neral .' poiiIt :,is that "::=high qualitY: einpitital -researchreq'l;lires de.pth .and',. ~ch~l~ts1iit'-' ~~yond .c~rreTlt,· 'lev~ls and thaf' $uchresearch is -:e)Ztremely ~tfficult-, t() :do.; ,,-' . .

Structural Models> ~: ~ , {" ~ > ~: ,A

:This section 'of the paper revj~ws ttaditiQ~aI st~ctur~ :mQde!$ ::~f-agn.·'·cu.. 'lfuraI ';p,roducl';::" 'maik~ts '~mrillaSfiing'> sU~'nly" :' 'and ': dema:ild" . ".' -, ','" . ' .,:1""., Yr,··, , " ....

spe:ej:fi-catio~~ :;!:lnef.'suweys:::6f iIt{)d~s,:6f 'product ~fiatacteristic~, ~atketiJ1g

ma:tgins; 'mlO" stprage ate· also' ·~ntlpdetl. "Most,'of illis"gectib:~ 'Q:~a}s Withstru~tUtar,modelS:':bf,time+seties>bbs:eIVati(}rtS anu' ther'¢by c()1nplern~fits :ffle'review of time-series methods covered in the next major section.

Modeling the Price Detetmination ProcesS'

Agricultural produ:et markets are; commonly: '>assumed to becompetitive and in equilibrium. Moreover,. given the biological lags

2

between:: ,qe~siQns ,:tn prQ~uce ~d .=the.,',r:e~~tio~, of, QU1put, models ofthese markets are often recursive (e~g., '~lgJI~gb~t,:,¢:t al.,;';~pdggs; S:ti~lman).To facilitate discussion, it is useful to write a linear structural ;inodel as

By~'= ~ + A~

wher,e::A 'a:~dJ~~,'_~e Oxo-: IlJatrice~ o(p:atameter$, (>is-;~ _'GX{{, ma~t~ ,otp~~~te.r~, :'Yi, 1$: -~ Oxl vect~~ l'~Pf~~~~ing:;,t~e ttl) ,~bserv:at:iQ~l::olle3:'c~ 0,£,<;t '~eJl.t. ~nqog¢:l)p:u~ y~q~~les, "t ,- ,i$:;~'-:;'~~" veet~r <tepr~~entiflg ,,th~, Jth 'q~~~rita~An-:o:il::'~c~i Qf ~<p:t!~fJ~t~rful:n~~tv~3,ib~e~, iri~lUding,J~gg~(fvalu~Q( ,Yh;:~~,Ui ..Is <~ Gx:l 'V,~~t9t ~th '~4~~Uty::',CQvariance, '~att~':-I:~p:r¢~~nti~g'-i~~;:~t~>et:rQtJ~ :~Qr '~~¢~~,;Qf:tb~::q;i~9tiadtin~~,,' '" ,', :'.'-: ' -: ,',; ':' ;,("" ,

iiii'~l:~~1~ji~~~:§;i~!~~!lQgic~,:,qpw, pf- causality it,t Yt, tQ~9~g:h ~'~~,~." J7h¢: .varia1l.l~~ .In;:tb¢,~ ve,~9!~e ass~ed station-ary" and ,siilC~e:; tbe, .eTTorterms- :are>,,,aIso assumed~~dOJi~:ij,:,ille ~mplic:adon is, ~h~t t)1e' va~i:ables in'¥t, ar:e ,st~tioQ;~ as' w~U.Upd~r ~~s~': as&umpti,d~ ,~,a~l,1,;;~tnl(;tur~l eg~ation, is j4~Ilti£te4~ .and:Ql$, isa:>~:¢~~~st~Jj;t ;:~rid .. ~PPP\dt;ically' ;efficieIit "esliitrtatpr:,:far :'t~~f:'p~t"~~~ners: :0£each :stmcturat,eq~ation.. ,

, "

,'Wltbin, ,~, :recur$:iy~ fra~:ewP!,k, ~ter~~tiv~, hypo$~ses '.,~b(),~~; ,;th~

,fp:tU:\a:t1on ::pf" 'pt:i9~ -exp~tt~t~p~;,:ca:# ,,;~~~~t{: -:i~:9~~~~ng; ::,in~ -' ','rationale:~e,9t~ti:q~:~~ ,hypot~~~is ,(Fis:~,eIt ,: ;'l1t:e ~~p.id<;~l': :aen:~~~qpr: of.; ,~p.e:cted'PP9~~>:·j~ey~t~~ly' ,,;infIu~9(Zes th~, :dYlJ:~JPic bellaviQf :Qr tbe mpde1o:: " maq~~tion~, ~nve~t()ty beha:YioJ" a4ju$tn:lcnt, QQsts:, .~ab1t ~pnn~~Q~,: ,:8iudp~t~~p~:::',pt~~r , f:~¢tQ~:s -, influe#ce",th,e ,d~,~~ics" ,:p;~:-:j)Ii:ce~,',~d:: ,q~~~~~i~s.U#fQrt@~tely", ~~tQetl ~prr¢~t ~ay: to ,m~del;."t~e: dynamic~, of t~e,eb~,9ge~QU:sv.aii~bl~s ,tn ,:a" ;stru~t:Ulfll fr~Il;1~WQrk :is :a!mQst ,n~v~r clear,: 41JQ diff~r~nt'$pe£ifi~~~~~n~ ":are ',-often broadlY",cons-is:t-eri{:;With: ihe~ ,observeidA;)e~~Vi¢~:::(}fthe ~~:~"les;··" :

In a few instances, agricriit~r31 ma~kbts have been modeled as beingj~ ::~~~~q~~l~b~~~,':(Qa~es,~q>:~9m~ck;,Z~~@eJ;,a~d :White:).. ,,Whi~~ linleapp~#~\: to -: 1?~<;, ga~~e~r, ;ftofli' :::d4s~q~~:lil?rlum, ::$.p~:¢,lfi¢$:~iQ~, -J~f agri~~l~uralmaJ:k~~, (lfetguson)~>;pric~,S: i:~, S9~~, ,~:~~ts ~~j~~~~ce~~-py' :gov:e~e·~1pt9j~: )fiom:::#ilie ,iQ tim~~, ,,~ric~, ,~qpPQrt .prQgrartl$" ~~;~" ,fQf ::ex~p:l~,hold',pn:e~s.::abo~;' '~qu:iIi:briym, level~~" ,$~uth,~~(~e~:;may:::~,: ,~~de.led" "as;,'

1 Alternative specifications are~ of course, possible. Endogenous variables 'may have asimUltaneous r:athet £Pan re.eursive relationship; the oontemporanc,911s' covarlanees may notbezero~ a nonlinear specification may be"preferred; etc. 'Many of these modifications, arediscussed. We omit discussion of nonparametric models.

having-; two r~gimes~ one whe~.govemmentprograms.> 'are influential· andon~,when they 'Me::not (e.g:.(LiU:, et 'al.).'

Disequilibrium models ,niay yet prove to be useful in 'otherapplications that in~olve "stickylf prices. :A more cotnmolf approach tom~ldeling agricultural markets is to use distributed lag 5,:pe¥ifica~io~ torefle:ct' costs of adjustment.' ·In this 'View, changes in: ep;dQgen6us variablesate""not :instantaneo~s; beea\lse' a: variety of imped~'erits '(c~S'fS) :to change:exist' (N;erlove).: ,:'nie adjustme~t'·,pt()C¢SS' is' treated',as ·a 'stl'ies:"of 'short-roneqttiHbiia,":~d'"th~~::~oilg ..run<leveF:is.~sutned :to be 'u:npbs'erv,abi~: ."

""'Cttrr~tit .. :producnqn 'and b~gi~ng" 'inven~Q~ies" ':iti't: > agri¢l;iItiIralpt99~~:tS .. a:re;-::a:rguably.~ :p~e,d~:t~tmi:~ed~ ":b1:tF:Pt~~~'~: ,~T:!d ,~fl(j~~:ttons"~f ,th~seqtla~tid~~' to :$;t~tn~te:: e't~d-u~~s:";may be sin1:tI.lmrte6usl~- det¢tiJUh~ti! Fotex~p~~~ ...-the., ~ppte:, ctop-:-ea¢h: y¢ar' is -- fixe:d~;> b~t sQme fleXibi1:it}' exists -inal:t(jq~tii1~: :produ~tion "arri6ng, tr:e$h~ Jro~~n, ~:ari;l1ed~' .juice -&'tld: ::~ther,:,us~s;.';:;.Ifpdc¢:~'-:~e nb~~:tv~d: '{OT' the: sale~: to ,a:ltet-nate e:nd;;cuses~ tntn :all:oc~tj6n>,-an(f'de~and '~quations ':fo~m _. Jt -sim'lllt.aneous: :system (e~g., French' and ':Winett~s ,application ,to asparagus). In this case, the B matrix (above)' 'is "nottriangutar, and A is- probably not diagonal.

Model $pecifications are taking accou~t of the increasing complexitYof 'agricultural product markets. An international trade component isessential for many commodities (e.g., Gallagher, et al. or Spriggs).D,epelldingA)~ the .:resear:~~:.,prO-b~~;mand commQdi~, the mp(fe'l';also m~y,neeQ""to '"acc6mmodat~ .,' jbi~tpr6di:lct' telatf()-nsbip~, farm--Wholesa:le"'ret~itm~rket :leWl .r¢l~t:toli$l;llp;s, :::qtI~it:Y ~r,' :variety differe:nees .(a~r :iti w061 ..:or'cotton ;mar~ets), ..and the effects of governmtnl progratns. A recent' modelof the beekeeping iI1dus~ty,':,for "example, has. 27 current "en.dog¢tlOUSvar-iabl~sf;.11 lagged> 'endogenous variables, ,17' exogenousvari~bles; and 13b~havioi-al equations (WiUett and French}. ,,' >,

.":', Fri~s :Qf. ~s~4Cl1ltural' PI:9ducts -are,' o£~en related, tes~lting in'multimar~et pa~al equilibrium· ,models, 'e.g~, model~ of the feed grain:4i~estO¢kcomplex~ The nulthnateJf model -'may"·'irtvolve the, entire:;~gricultuia1 se~tor

of a country, Q:t it,rl1ay-:be a computable 'genera] 'equilibrihm model (see'Hettel:for ,3. contrast of a" tnu1ti-co~O'Qity-, parfit], equ~Hbriurri witq:'agenemkequiUbti~m'fr~~ew{}rk}.·· -' ,,' :" ' '.

·8~ctural·:motleis 'have the putential to proVide useful ,int6rm~tion,h'l1t- they have' n'Onetbeless::be~tlsu~j.ected ~6 growing criticisln'$;" 'Ba$i~atty~'> ,the maintained h~otb~siS-4h¢ '-information','<that can be treated' -~unquestionably correct--are in fact questionable. Y:et, overide,ntifyingrestrictions are rarely tested (Sims 1980), though they have long heen indoubt (Lin). Likewise, the 'exogeneity of, the, nex-6genotl~t1 variables isalmost never tested (for an exception see ,Thurman)~ and as discussed ill'the time-series section, the stationarity assumptions about' 'the variables

~y, ~Dt::be,J~,~. ,Als~",:simult~~Q9~, ,~ys~~~::,0ft~n,J~a\le ::adatg,e, nnmb~r '(}f':

,pt~de;~rtWned variaple,$ 'rel,atiye ,t~, :'t~¢<, ,~~m:b~~l: ,;.of ",()bS~tYa~Q:M:' .;~dco:ns~q~~~tty, 'one or/~o ,ob$e:hi~tionS 'may' have': a 'larg~' in£b:l:e~ce, on 'thee~uw~tes; ,Thi~, is",p~i~:l~ly, se~o:us:::'iIl light ,()f tb¢:,::'pr:~~es:ting that:Qop;n~ly J')~c,~tS:, ~ 'model ~p~cifi¢atiQn.'; ", ",,: ,:,: ,: ,:, ' '

loi~!!iE§iiii&!i~JJE.~~jor Cl:la:lle:nge, 'inJiJ)pro\iing'structural tCQnOmetncm~dels« '

Th~S:, ,estimat~s:: of,' ,dematid $ystems usually" do not ~nS~der jhe ,pa$Sib~e',sim~lt~tl¢:ity ,~r ~Clil~~tveije$s of, pti~e$:': ,~n~" ::.qu:anthie:$:, 'while' ,mp,d~J~ ofmatk~ts j~Qte :test~ict~onsim:p~j>ed by' demand t~eo:ry'. '

·.~1~~~~i~lS~~:t~t::;;~i.cE:a~J2ii~e~():lJ;q~i;~t>~: ~~v;¢" ri1:~Q:¢".;p:1;;lJor',' ~Qn:ttib#tions "to :developi#g!,ad;tptip;g, :Alrtd'app~r;i~g ',~:h.~o~~Q~~t,:conc.ept~:: to- ',:sp~Gifi~ ;ai~i~J4~ltlfrnl :c~~Qqit#~~~ :b~t aY~l"gq;Jf ,~~~~:t~~:~fs::h.~~~~:n. J~~:9ry :ano: ':~lIlpiri~~J: artalyse~>:~f. suppl~: (fo:r a'sunmtaty '~d cr~ttq»~, se~ J:ust,19:9~).- .',

~ > '" > > > "> >

, • ,~: ,: ,.: > i~~p~lt :~9~'e~Js::}~~ye S~m&~ (~~~¥r~~ :i~:,~~9~~n. :,N~~:11~,:::$~~<?¢' ~J~$¢~l~l~,J)~tw~~p" ~~~: :tlmc: ;~, :Q¢~lS:~:Qn::;:~Q, :pr:Q~U<:ie:"ls ,m~~~ att~ ,th~,:,t~e .'pic(jd~~#p~,J$: :~~~l~~¢l ~~4 '~Ql~t, ,~~cte:q' :Pf~fI~ :afe:::Q~t¢n::~sufll'ed "jQ .b~:"a~¢t~()n.>Q~:, 'e~e>et~9~, ,q~tp~t "price$ :~d" :e~~ct,e4:yield'~; input, prit¢$;' ~teas$rim~~ "~9~":ft~~t:~~gg~tl()us:::~~,:~~~, :ini:tim.::~eqs~qn ~~tll~~, C~u}seque~tly~: >

:ptQduct:':pr:ip¢',ti~k' :~d ~~)d: rjs:l{:,':tnay 'h~' ~t~t¥1~p;t~< ~~>~h:¢ ':$~pply~~~~ti~~,But, supply: functlt}llS, r(jt &pecif~,c" f~m», 'commoditie$ ,~~er matk~dly,

'Qe:~~~'-: :Qt:»>·:~ft¢ 'J~~(feri~g, ': c:~ara:~t~ri~~i¢~ af,: t~e' oo~Q(Httes,:Jhems~~~~s,qijt~~~g):-:~Qmp~~:ti~~:-:' :~~~s::::-::fQr:'::'t~.~~~$:' ,:acrnS$;.;-:jzo~pi:liti~st-~,:, vat:Ying,tl#PQr:~~~~t,~rg~v~~~nt :'PT~tgf:~~:::;i~' :well:::~ ,diff~~:enees in':hQW analysts,'a:~dre5s ,speeific mQ~~ling j~S);J'~~. ,:'"

, <

.:- ,,4ve~~oc~ ,:~~(l);fvesto~k 'ptp(JU<;~1 '$~PP:lY ~an '~e "qi~e.rentia~ed 'frQm~r~p supply.:, The:,9~tp:ut J)! liv~s;tQ<;k and <~i!estoc~prod~cts :is constr~n~d.In th~ short tun by" the :stze of the ,breedlng flock or herd. The Jlock'

5

proGuces<b'oth ·young ~(lCull 'animal~,: and Jbint i)rO:du:e~~~_.'sncb--aslamb andw~ak::are:,:s()tnetj'tne~J$p~ttant ,If '~xpe~t~d::Ptofittises(youD$,:~~Js,~n:be :-~44;~d' .to', the _b~~dm~' lj~rd:, rt\:th~r --than: sold fO:f' ~laughtet(';,andconse:qii6ntly" the 'shart-ron :stlppl)i"><response~ as :measureo' byquanti:ty·slaUghtered, can be:' 'negative. -;, Since, 110wever. :,(~:theradjust$e~ts' :sueh:' asfeeding'Jtnimals: :'10 :h~~vler > weights ',may' 'be 'feasibl¢~;jhe "~t \t-esponse ,-maystill' be 'pOsitive--(Jams; :,Chavas:-,a:nd 'Ia~mm'e~ Wippl~ -and ,:MenkhitusJ. Th~',flexibilitY: ,::to -, resp6n~" ';:to,: a- 'price': :::chan~'; vanes' Willi' 'the stage, :of thepfodu0~~on cycle, (Cha\l~ :and J:6liriSoJ1)~:' : ::: ,,' ,.' ' .' ., "':'" ,: -, -

'., ~ > ~ > ~ Y,: ~ ~ v· =,' / v V _~.>A ~ ~-

'The,'o\ltpul re$p~e",t(j;'ptie~<~llef¢a:S~~:' may ::diff~r :ftqm, :tb~e, fOf:

··.~1Ei~~~:!~::~~~~;:,;~t:J~~'~~·~5··:lia~~r 'Jt}1itIff ',e~4e:n~e,.,:~ij~~stent 'with :tl1e 'l1motJ1~~js, .J~:.;g., 'Hoijck;; rra~:tl);.>F()t\1iv¢StQ~k~:,::tl1:~:, '':~l~logi<jal' ,c~ti$~t~~:t~,::,whj~h .:'e~s~ 'I6tr:~~pply' 'e~pansi~l1 ',d6,',::nQf':~Xis{ <for>::-¢ulling:t:be)bteed~g?fi~itl~ :'and:-::tb¢,~p~ed Or:aQjHstm~~t,pt(lbably' ditferS' ·,betWe:en' ::Pti.ee', .ii1dre~& 'and decteases~ 1mplyitig ,that' -:the'length' :of: the' -:l(j-ng~tun :'adJ~stment' differs depending -on the:, 'aife'ction ofp-rice:'change,. ',-' " ;-' "

.': ':'Perefim~l 'CFops,·Pt~sent',:sitriilar ;:'m:odeling' :chal1enges. In, 'any ':givenye:ar~'.'-'production --is 'limited by bea~~~g"::'a:cteage;produ:eers' may' l~aveprod'Qiction unharvested :and' tun trees 'ln reSponse 'to low prices, 'but little

::=;:' can' b¢ ,4Qlle', tQ .. increase ,output.. ll)de~d/, ~:~,: 'appr~pfiate m¢asut:~ ,·:o.{,exp~Cl¢d, d:i~oxlnted '~pt~fit .t$ -:a: :crl:iie~! j$~~e ,hecause>Ye~ts. P~& ',b~fore :,rteYvtt~e ,. :$to¢k be~rs 'frui:t. ,.' Althougb : agrlc~dtural 'e:conomists have, beeningenious' :in-::extractlng, i;nformatiofl from Ufrtiteit d:ata sets, -a,'·full analysis oftree.:~top,supply'"reqiii:res-data ·on platJ.tings~ remo~als, ag~cotnposition ofotehatd~/and}'ielus 'hy~':~ge:; (Ftench, King. a~d -Mipatni); ,

,Among>:farm co~pdities, 'aijIlually p~oQuced cropsperh~ps are the,si~plest::to. ;~deJ; :,Farme,rs,;tnake'.'annu~.-de~is19n~'-'about the 'area to :pI~~t

aJ.i~f' .a'b9ut ,:cult~al :p~:~¢ti~e~ -to '1;lSe: (hen~eJ ,~bout yields). ,:Thus,' ~~:pply,responSe -,C31J/' be:" 'me$ured :, ,~a" .:.acte:age:,'planted-=' ~uld ',yield'" "equations.Howev¢r, ,even supply ,analys~s of a,Mua] 'crops is' nor >e~y. Mai1:y of themajor" cfOP:s, SU(ift :as: ,wh~at, ,¢orn~ 's~ybe~ns~,: ri;e~;'- an~ CQtt~4" ':J.fe"'irit1\l~:nf;~d. 'by:::g6vet~~nkpri)w~mS~' Hence; trinSi~erable, eftbIt"has:bee~ ;d~v9t-ed'toestifua~ing< ,supply::,·'t:esponse'·; in.; .t~:e :::presen¢e ':, of ':g(tyefument :-pt6gtams~

Brp~dty 8})ealdng, tWO- ':app,roacnes have ,beet:t ,;~aken~ ."In 'C)_ne, v~~~ples-, -that' ,tak¢, ac-count- of ':;ta~, prtigtams -(e~g~, measures: of:effeCtive"->prlce~'s:upporls)

are, included in the model (e.g~, Boudk, et ,at). This type -st,.e~ification

typ:icaHy results in 'a fairly parsimomou:s ,mod~l, 'b~t aSsumes tIlat modelparameters':m;e constant over alternative program regimes.

6

',' .;' . :.' /Q,l~:;:,~e£on4 ..~PPfP~~b ··-a!tempts JQ_::lnod~l' tb~ ,A'~e,'.:~~!ket ':~dfannp;~w~m:: ::t,~m~·, p~f:i(:)d$," ~ ,s~p~~ate ,.r~g~m~$, ~~r~qy:,;,p:eqnit~~9g>:p~r:a~et~t~.to 4;1f¢r,:'f~ Jij~ twQ l~~ti:(jds::{eig., ,~~ ,; aQQ'::!ie1ml?e:tger). ';-;:This:: al~~tnativ:eh:~:<th:e. p~~~ndat:~~ :pI:~viq~~9r~ in;fPrnt~#on and "avQid the P:Q$sihl,~:::bj:c,tS,0:(,~~~¢i~g ~~:t~t 'p~r~~t~rs.".Qv~r.: we,: en~~e: .SamPl~, p~rioQ'~ but :thisa~y~n:~~g¢,:::~.· ob:UJ;~n~~::,~1; .'tb~· c9st·:of ,;est~a~W!l::mQre.,::param~t,e:rs!,,· ..4e, :andij~bn~~~g~r:: ~s~ ~:p~~~~;, ~1:~e"~~rl~sand ::fXQS5:.;sectlon ::(~t~~¢:s)' ·,E)~~xva.:tiQns.,~~< b(llJt:1d~4 ppce ·y~r*atiQ-nmo:Qel,prQV1tl~s '·an.'a1t~~~~v:et~eafic:~t~on .(>f~(), r~~~es~ one ~th pqtH~briu:Inpd~¢$':.,~~>,QIl~ :w~~~ ·prj~s: de¢lint ,·to$~ sUJ~p~tt le\tel (e.g., ~qh)., Price" s\lPpof:~s '.g~n~tall,Y ,p~ovtde .~ ,l()'~ver

.~_~f,j,·.•~.I·.·~,t,},f:I:~'l!r~l~~rle=1i=~:iiS;I.:a,v " ~ ~ _~ I, A, ~ >.~ ~ ::;,~»>

·d~~t¢J:~:~~~~:t:tt··~f:J~at%~~~··~,::rJ:l:~197:~,:; py: ,l,Iou:~~·,:~t ~~.:~~d .. by J.~e AAQ"Fle~ni~er:ger are,>.~~m~req:. in.Table,1. Th~~; :~~ysts ..believe, .that exp~cted:-..5Qyb~a,n ;~nd, ,ccirn·: prices ·:are,bnPQrtant .arid. -that soybea;n acreage has dynaJnic prQperties.. .Bl;l:t tbey:-donot agree on how exPec~ations,should be measured, including how gQv~rn·m~n:t ptogr~~s sh~frl~-:be;::fuQd~ted,,:;Il,rit' 'QQ:':ll\ey<~gtee::9n:<h'q;v:::the: dyn~nlic'b~~yiOT ',of ,acreag~· 'sholJ1E;I: :he: .-:spe~ified;: N~e, ..:of :theit:':,:sQybe:an:::m'odelsoonsid~~ ::pIic'~, ,or- yi~ld' 'f:isks:.,. ,The ~ffer¢nt:$pecific.ationsf ,:howeY~T:, ,expl~ip.· <

acr:e~g~,,:'t~$p:onse ,'abo:~t~q~~;l,y:'weJ1. .. .

."" .'11l~ pro~em. ;ilf: :·1l1·~~~:t:iJ}g·exp~~tattiJns:. ':ari~es '::in ~~~ry. m~del: tif'agr:icultural slJpply, ·"e#~¢r:, i~pli_~itly :-:Q~ ,expl~:cftly~ ,Alt:~Qlatiye.::empirjca1~easu:res ~(~ >ewl~pitly -compared' fo, tbe~uppl'y' ,of fed beef in" a 'paper, 'byAntonovitz and Gre'4l;l:. ','.They ~~idet n~i¥e :e~peQtatiQns· :(simpl~: :.t~g))f'c~h priceS), fu:tut:~s pr~c~s; ,<AR1M;A f()recasts, ·(sometimes "c:alled ·,quasi-.~~~t<?~a,l ,.~~p~~t~·~io~s,. ,~~¢. Ne~lp\T;e,5!t~tJl~I 'an~ C~~~~o<p~ .:~,~?), ~~~p,tive'e~~~:~lQ1)~t anit, ratlo~a:I.:J~xpevt~:~u)~s.,,' ~tugents'·.of ;fu~~fes: :p;uH:¥e~, wq~;t:1da~gue: .,tb~t J~I:tures,:pr±ces '~: ~f:r¢' ~~rk~~~s <~atj:9:n:aJ, ::me:as\l~ ,Qf ';:~~:e;cted".pr~~~~ ~~t::Jh~::'futur~~:a11;4 .·i:~tio~al~~~ti:ons:spe(jificatio~, -of ..A.ntoRQvitzaPe:t,: GTe~~ ,give qu#'e, ~iffer~t :~mp~:r:ical tesu~~. ,In contrast1.und~r-some ,;~P~~9~~~Qns~, ·~~t~~p:~l, ~~Q ~Q~p:tiy~, :exp~ctatiQ~ rQ~del~·,:t¢S:ult. in-jd,en~teal"cii:;:s~I~[:.~nJpj~~~c~I: Iil9d~t:~::(a~~~~~lh)~ ,:PQ! ,~u~Jy,:prQdl:J~edj:'!~~il~b:1uQ:us '~y~nt~ry .:oo~q~itie&:,:<:inV:entQt~e~ Jink :pric~::thtQ;ugh··:dme;··,~~n=ce~·,$:lnj~nt.:'Q~se~~ti':l1ls~ ,OD, C3.$h-, >Dea~QY, and' >distan~ ·fu~tttes prices ar~, highlyC0rrelat~~, (Tomek ~d: 'Gr~y),; , .' >, : • , ,.

,Supp~y ,;l~a1ysts~~ve,.in~e~i~g~y considered me~ures ~f risk intherr models (Just 1,914; TrailI). ,As noted., alt~tiv~ ,measuies' ofexpected price exist, implying "at least an equal number of alternativemeasures of risk. Actually, the number of measures of risk is larger, as thedifferences between expected and realized outcomes can be treated in

Equation

(1)~

-Expl~~atQ&:variables -_-

'.98

.99-'-

7

-0.46(6·.6)

0.Q4-'{O.l}

Q~63

-«tO~l).11(l~5) ----

:-:J)8-,(3.9)' _.

.50

:a be-Pendent variable in equations (1) and (2) is acres of soybea~s planted in milli~ns,sample .P-e:ti~~: :J~~9.:74;At~:1-,.lS:,.l~gge-9·,:d:~p~I}del1t -vttdable;:, :- -. FrS: 'ariQ,: ,fPC, '~e ::pJa~:i~#g:'timepr~ces ::Qf::':p()st~1;ia&e~t, fu~ijte&.. ~o~tt:~c~s~ -.spybeans ~nd ,COf,n, <re~pecti~ely; ::p~/pc is-,taJjb, ofs()ybean",~q-' c9rn._:pr;ic~$ r_e~ived: by- f~rineIs; l?$S -is effectiyesLtPPoft, price to:t>soybeans; PFC isef£ective:,:~ll,PP.o~~ pri:~e -for corn; <·ope is:·,effective d4visiop .payment rate for..oom;:-TRD is trend(see G<a~~~ei::~.l{oJ1:c~. et ,aI-.) .

b Eqti~tip:ns (3~) and (3h) are linear in logarithms, replesentip,;g two regimes depending oneffec~\T~:n~ss: Q(:pj;"i~e '-~~pp~~tSt 1~4S"~O satnpl~, for ~QtIr :$tat~s, '~th- :illt~t~Pf:varying-by ,~ta:te.Depend~1.lt :v:art~Q:le:i$, :~etes 'of :sQybeans planted -in <:tl~()~satl9:S' (in 16ganthims:}. -PCXa~dPSXare farm·Pf1.ceS Qf,c~rn.~)l(;l:-$~y~eans, respectiyely,-,deflat-ed_ by .an indeg>of i~put-,prices; FPP lsexpectel~ fe~d gain 'p1;'Qgr~~ -payments _available :to f~mers; ·ADV is maximum- 'acr:eage diversionor set aside; p is autocorrelation roeffici-ent (Illinois value shown)~ "

t-rados <'~n pareX1th~se"S. -,

8

Qi;fferellt, :ways~, The ::'spe:cific' 'risk measure' ,'may be.:; based, on, -squared, ora~st)lute, devi~tions, and symmetric (both positive and negativ~) or onlyunfavorable differences (negative differenc¢s for product prices) may beused (Tronstad and Mc~eill):' ,

Notwithstanding. :the" many diff~rent e~piricali implementa#ons ofprice riSk ,measures, reseircl1 results sUggest that rl~t<'has a negadv~ effecton supply and that the, '~~¢lusion of tisk, from ,t~e:' model biases -the ownprice' elasticity ,o{ supply downward. Risk vari8ibles are often statistically'ifupott@t"c~earlyimp(,~~~g -the ,fit 6f the moael.' " ' ,

ini~~r::i~~:~.~:~~~~;il~v~t~~~~p~c;r~~::~~itf~~~v~~~~" ~b~e, ~re, -m~del~d 1:fl an ad 1t()C.,f({S~I~n: 'The ,_p1o~t" ',common;5:l?~~lg¢~t~~~, ,is: 'toJtItl~4r ,>~ lil1~~r 'tr~~<:l ,i~. th~' ~q:~# a:nd t~~s ,tq::;~su1!le

, ,tb~~: tJl:e:::p~~~¢t~~(:pfthe:)rtQdcl :,~¢:/eQ~:~~nt' ,o¥~t, ,t~:~: :s~mpl¢ :pe~o~,_:net: ; ;.Qf the :tr~rid vati~1,)ie~: IIi' cbptra~t~ .~':fiiit¢(F;in ,t:fie:, ,nex;tse¢:~~tlrl;j, ,:analysts

have spe;nt 'much,effort trying to det~tmine. whetb¢r ~b~g.es in' censumerpreferences have resulted in structural change in the demand for farmproducts. The' prohl~m on the supply ·side is that ~~chnologica1 ~h1:\nge isso p~rvasjve: :and conti'llu'Ous that it Js, difficult totn¢~$:~re. Thus"it m~y be~p:os-sib:le.".tct' 'a.d:dr~ss .th~ e:ffects'- ';of->''technol:ogiGat'><change in· 'a 'fullysatisfactory way (for a nonparametric -approach, however~ see Chavas andC:Q~).

, ,

".; A1i9~.her; "~e ,a~, conU:ibution: r:~later to:' Qbtalri~~g ,:~upply, :~~tiri1ateson .a· 'll:10re::;:disaggrc;:ga,ted ba;Sis. ,Supply resPQllse Ca;fi-"vaty by regiort'sinceclimate;~ :land. q~ality ,arnl -otber fact~rs ,may vary ~geographically,' by variety'ofJhe" commodity, w:Qich may,:be hig~ly correlated :with r~giOh {say, 'spri~gV'~ts~s wil1ter-wh~at),,~y si~e~nd typ~ of farm (say, full and ,p~tt":ti~e),'~nd"pei:tbaps',by age or' othe:r attributes of ,the farm I1l:anager. 'W:hen data ,areavailab:le, ;it i~,',poS5ible to obt~in -additional' insights"into the nature' of,~ij:pply';I:~spbnse" ·at mote di$.ggtegated 'levels.' 'The:S¢" r:e~:u~:tS ~nnQt' :be,clla:racteti#~d:<:i~ '$e .'~pace;::availab171';~:~t .3.' few ,are ,iHustrat:~a in T~~i~,_ 2.',~u~,:xes~dts remin4· ;US'" of the dtfficulties o·f· talJdng about Uthe'" pticeelasticity: '6f supplY::nt of making ·comparisons of elasticities,without care:fulq:ualification~ . . -. ' ., ,', ,,

Although models which cons:ider the dynamics of supply ':and --theeffects of risk apPear to find ,more price elastic supply than othersp~cf.fications" it is'difficUlt to generalize It:0111' the ,diversity ·of etI;l:piricalresults. Rather, given the div~'fsity, it app,e:etrs that no 'one modelingapproach is suitable for all commodities or research problems, andmoreover we seem to know little more about the lftrueft structuregenerating the data for any particular farm commodity than when e-mpiricalsupply analyses first started. The reason is that most price analysts imposea structure on the data and, in general, do not test whether the assumed

a

"Com:mp~ity

,~il~ P;~'~~1;let~9n, U:Sshort runl~ng ron

Mil\{,· N:S,:$nort run,smalt,.ums ,:"

, ,.. ' :" :'::';!iiedip~.'~s ....,:,l~~~~ ':f~in$

Shee:p, bi¢~¢lt:~g, tlockw~r;~i~, l~ffl}j ':pb~ce

:~h()rt fun'lOf\g run

w.r.t.. woo'l,,:ptic~,, ;sho-rl:fUft

, , ,,: ".' ':: .iQ~g .,:·;roA

~eat' Acre~ge,PQrri '~~lt states:G~~~r)viqter wh~at, st~t~s:,':.

DakQtas

Excludes Montana

Elasticity

0.115.03 to 6.69

0'052::,,~ij~~7 ::,:,:

,', G.23

0.8711.53

,0.32~h$6."

0.·61 to 0.95

·(1.22·10 fK46a

0.71 :to ({99a

Citation

Adelaja

MorZlIck-WeaverHel~berger, Thl '1 1

10

structure is correct (except for some rather superfici~ appe:~s,to t-values;signS, :et~.). ,,111us{w~ ,ate: 'doubtful ,ahout ,the bett¢nts>-of <imposing an evenmore rigid, theoreueal structure on the data as ,$-e.ems' to be implied by Just()99Z)~ E~pirical ,results must be data consistent as well as theory,consistent (Hendry ,',and Richard), and ,at a minimum, analysts 'bave a~$P9~~ibi~W ,to demonstrate how their ,results,. ,itnprove upon previousresults; ,,:We :,have <nlore to say about improving models in'the~l~t section ofthe paper.

D,e;n;tang ,Analysis

, ,,', ,13~pi~:ic~l ,d~~al1d ,m.odels (;~::::9~; br.oadly ,:tl:aSsif~~t1,,~ 9fl ,ho(J ,or":par:tj~l· ,:$pe~fic~ti(}ns' ,af)~l demand':$y~~e~ s;p¢:cititati~~~ ':' wbi~h :iPlpo~etestri¢u9*S'·ff:Qm, ,~~mand ,ttf~o'rY,on th¢, 'syst¢Jl1!: ,ltQtu, ea:t~gQdes, in.mtiI,'have 'tn@y: ::sp'e'(~lfiC:a1ierI).~tives .. , No s:irigle ,'approach tQ: ¢odel,'specifiba~onhas ::~urt~(:~d ,~,,','t1ie:' ,bes~.11 "As "~P- ~:upply. ,~n~ly;sis, sp,~~tl~ations v~tY· With,tlie'-:pt6blem under study, and 4eini};n:~ ~~yses JQr fo~as'ariid.' -fi~¢r~, havebeen stimul:ited by a variety of rese:aich problems:

Th,ere is perhaps a predisposition among econ,omi~ts, however, toestimate f'theory con5ist~nt't demand 'systems" Initially; :,empif:ical W1~lyses

and .judgment were ,co-mhined. to ,construct ,matrices --C?f<d~an4 -:elasticitiesfor indiVidual foods vlhich are consistent with theory :,(Btando~)., : Thisapproach "bas' been c.ontinue:d ,and refined (e~g., ·Huang)., :A':- potentialbenefif:is 'the lar;ge:,number of 'estimated paramete.rs~ b~l:: :tne:·estimale's are~ed_, Q~ 're=tativ~ly .few saU1pl~, points. ,(ltn~ng obt~f1$:-:>t.640 par~eter~s~i~#te:s.from: ~5 ~Wltnll' qb~ervations.} "Clearly tn~:' ,estifnates" r~quire antltriber of 'assumptions, approximations, and jlJdgments, which arecollectively of unknown quality.

A se~ond: '~pp~o~ach us,e:s a spe~ific fll~ct!Qnal form for the demandequatio~, aggregates over individual commodities to form a relativelySIl1all: number of commod~ty groups, and,estimates' the, resulting ,system'sub=le¢':t to 'theoieti~al r~S~rictibns. Ftinctional' forms are selected to strike'abah;mce b~tweeri mathematical and statistical convenience (simplicity) andtealism.2

Various linear expenditure systems (fpr a summary, see Johnson,Hassan a~d ,G:reen) have been fitted, :~or fOQds. Aggreg;~ttiQn into groups,sq:ch as meats and eereals, has largely be:en a matter of judgment, and aline~ system can place unrea:listic" restrictions on etasti~i~ estimat~s(King). Fiutner; systems specifications often ignore dynamiCs, possiblesimultaneity, and variables which may influence the level of d~mand. It iS t

therefore, perhaps not surprising that statistical tests often reject the

2 Alston and Chalfant (1992) review the nonparametric approach to demand analysis.

11

~9nslra.ints on, ~h~, ,&yst~m implied by ,demand theo-ry (see ,,Johnson, et ~L inC~PP~J~1l" S~~~~~r"T~pl~.~)~ "

,~ ~ A", >~ >. ~ >

, SiJlee its .In:trodU;C11Qn,. the: Almost ·Ideal Demand 'S~t~~ (AIDS) ·,has:b~.c6ine :e~p¢cjally popul~r: ':in -~griculJ~ral eCQnQmics. ';:-: It 1;lses as~~lQg~rithrnic .fnqn \Ybich has ,~ome ,th~p:r~tic~l· and .prCitetical ~qYantage-s

(Defit911' ,~d. ~~~Jl1;)~ller; B,~al1¢forti ~d Gfe~n). "Ute,iib equation'.in Jhe.sYst~m,,~ay' be wnt,en >.' '

~ =: a.+ '" -v:4n p: ... .-R;' lnf"l/P)'. .. J If- "ll J 1"J v

1.

where w· £".:n. t:t.."y',. - 1· I:'l "\ilt" ,

P', .::::- prices.j- "",)-

i, J=, 1, 2, ...) n Fommoditiesand equatiQns~

P = pr-ice in~ex defmed by

In? :~Q + E a. In J!t ;.; 1/2 L t "'~j In Pi In Pj'i' . -- i j . --"

n

dild Y =LFjqi'i;'1

o ~ ~(~ )

To make th~ );node;l lin~;af jn, the pafam¢te(~ it is COB1:IIlon torepla~e'p ~tb ~*, a ,]qlPWll _price' index .assumed ,:to be 'high-Iy corr¢:lated,witlt P,{Q~3;~~n :a~d ~vlu¢P:bauer) p~,,316). Po:te:ntlt;il dis:ad~antages of 'AlDSin:~~u~,efu~·: larg~r" t:tum~'t _pf·par.anleter$, to ,:be .e$timated,:than with ,a :lifle~rexpenditure' system 'and coHinearity' in the regre-~sQis. In- additi&n, ther~gbt..,~-a~~~s:ide prices. a~d, total ;cxpenditure.s are s~ttltaneously detennin,ed\Vitti tne--wi' (a~_in >other ':de:n~:a:n~fSyst4in,:sp~e~fi:ea:tio~). ;.

'., i~ ~gri~l~al 'eQQnpc~~:t.,~th~,',~yStem CO~$jsts 'of .(oQd ,gt"Qtlp$::=(meats,.frui1$ ·a~4 yege:~~Qle~} ~tc.) ,or ,agg-r¢.gate,..cQmmo.dit~~$: withiI'4: s,~y~ the me~t

gr,g~p s~ch_~ ,be;~f, pai~ aij,¢k~lli~~en.:,.:.,S:u:¢J;l:group~rigs..tequlre; assumptionsabout" the sep·arability. Qf u~illty JUl4 JllJ:dg~ti~g. st~g~s:::Qfj;1()ns~I11ie:t:$~ :and: .theappropriate gfoupings may be -unclear. 'One .artalysis suggtsts, {t)r ,example,th,~~. cQ1l$:utn~r$ ·40 ·!lot .;~I~Q~~te: ,e¥P~U:~~lllr:es fitst ~o .agg;f~g~otes lik~ ,chi<;k~na#~'.'b~¢f and., theu_ to·> p#)du~~s ~~~Hj 'tb¢. aggf¢g~te~;' "'R~;th~~, .ailocanons m~y be, m~~e ,between'higfi and low, 'quality got)ds" wllere, whtil~ chickens~d '~~mb~rg~r an:. e~amples, ,of,.r~latively close substitutes (Eales...andUnnevehr 1988).

12

"Agricultural economists have co~idered inverse demandspecifications~ ,which may. be more consistent with ,the price, de:lefminationprocess in agricUlture (Ea:1es and Unnevehr 1991), allow~d for dy.namicbe:ba'Vi:or in, the:'::1t1oael bY',using first diffeteilces" or by ,nsltlg 'the laggeddependent vari~ble (Eales and Onnevehr 1988; Moschini and Meilke); "andus~d; 'AIDS' 10 ',consider, specific' ,issues:':such as ,structural ,change' in: meatdeinand '(M.oschini and' Meilke). At present," formal ',syst~Q1S ':tY}jically givee~asticlty estimates for aggregate commodities, which ,have few practicalappUcatio~ (on computing elasticities, see Green apd Alston)_ To theextent :that a$ystemsappioach can be used with relatively disaggregatedcommodities (as in Eales' and' Unnevehr X988), the empirical results may:b~~- ,in~easing -va~ue.,

,,AfPS:-style' (Le.., ~Xpenditufe' shares> in. -a sentilogarthmic <form)~qy;ation~ ,also '~a\le been ,fitted to ~r()ss.:.s~cti()n ob:~etv~li~ns~ u:su~lly withw~ces: ~l:ilitte:d, bui a v~i~ty ,<if :ful"iell(;}n~J fot~s ,h~ve beenco:nsi(Jer~d ,incrris$;$e~tion. alla1yais. In the absence-of pdt~ variability,. the gen~ral formof 'ail" Engel (cori$umption) ':funeti6n is" cr ==fi(Y';" 'Sj' -"i), where cr ==co~:mption -of the ith good' by the jth househdId, y. =' income of jthho~ebold, Sj == h?11Seho19's si~~ ~r seale,'and ~ == other variables whichdefine the household's cnaracJ¢flstlCS. Consumpt~on can be measured as a,physical, quantity",:a;s, an 'expenditure", or as, in. AIDS" an :expenditure share.

A surprising number of consumption functio~:have been -specifiedas line-ar in the variables; the, semiIqgarithmi:c,specific,ation is also, popular.\Yb~It,·t~tted to, }~()us'ehold'. da~ wi~l1 zeto, :observ~ti~~son,,-':~on~u~p~ion,~pth .forms permi,fthe prediction 'of n:egative to~umptiQn at positive "l¢vels6£' jncome. : The -logit or: multi-nomial :lGgit-~ in :dle case,of a system, 'is anatte:t:tt~te :approa-ch (Tyrrell: and Moun~).: 1}1e depend~tlt, variable:, In[w1/ (~

W,j']t ,stin cannot be "zero; a common practIce has been to -replace the zero~¢ndj~ure with' a,n ',arbitrarily' small positive:, const~iIt; bill ':in this ,modelpredictions cannot be 'negative.

A Tobit mQdeI also is a plausible speCification. Atwo..;part decisionprocess is ass\lmed: whether or not to purchase and th.en if a purchase ismadt\, t~e :a;m<tunt purch$:ed. This appro,acb' ,c-an" explain why consumersmake purchfl;$~$':':as:weU,:as the level"of purchases. It is--also possible thatthe 'surve;y peno4 ,is ,-shorter '",than' the put~hase Cycle, and herie~ 'n,6n-:p~chase is··nnt equ:ivale~t Jo zero: ~~nsmnpliort:(60uld). ,- "', .,

~ - > ~

:A 'key ~ooIlc:ept :in modeling J}ouse1J~ld d~ta is the life ~c~~, of tne,hotis~bolt1~ speciflcaHy' the' -J;lumber, s~i; and,' ~ge:: of the' hous-eholdme,mbers. Generally, models of bousehold 'behavior represent age andg,ender indne ,of tWo ways. One approa-ch mvolves the construction of!'adult equivalent scales" for members of the household and thenaggregating to obtain a "household equivalent scaleII (for alternativeapproaches to computing adult e-quivalent scales, see Tedford, Capps and

~~'\Tljcek)~" !'\tl ,'~ltemativ:e:J~.'>to includ:e,,':size, age,and ge;tider ~ar:iables' as,separater;~gressors; :bnt ,thfs,jmplies a,<btrge number '0f patant~ters~,.' ThUs~

the 'lta;d'e~Qft:Jn :th(f, tWo>speeifi~tiom':is<be:twe'en:: th~, redutetl,:fle,~ibility, hutgr:eatef:-<,si:mplicity~",'of" sc~le':, 'variables ;and', ,tP-e' greater,,' t1eXibi1ity~, ,hut'inde~~d-:"'c()mple~ty, of:-havi~ ',nu~etou,s 'gender/age :'variabl¢~' -:in the'ttJudeh :::Ty;rrell.:311d Mount' use a' :Lagr~gian: lnterpolatio* polynonnal 'ofage, ':>~~l~gDus' >to,:an Al~on, lag: "specificadotG,.' to ,U:mit:,the'"l'iumber "ofparameters: . '

',: , ":' In.: ~~d~~on, to> :iJ:lc:o~e:-':and 'Uf.~:: cy¢te'",effeptS:~ ,'jIUiny,' ot~er' variables~li:~i~fjf~tly::infl~:ence<:food' cOnS~tttp;~iOIl '~~a~Ql:t!~*-d':-the$e' ~t\ples:

·Biftj~Ji~iti~i~I€~!!!~!~i~iE;mrid:el :as:-'p&s$it?:le~ -Cle~dy "many' c1iffi~tilt 'modeling de:¢rsi~$:::~#st~,:: ::; ': ' .

>., ~ ,. ~ ~ ~ ~ > >

",G~y~n ~~e ~~rge" number o~ ,sped#cat1on ehoic~s,': alt~~~tive:empjric~l models ~iffer substantially (e~g., Buse and Salathe; 'Tedford,Capp~. and,,'.H~'V:Iice.k). :Levedahl '(Table' 1)'"su~,ariz~s, l~e 'widely varyingni~~g~n~l :ptop~nsi:tf~is:, ,~o 'spend ,on" food estim'ated' by '::varJ:ous ,"$inalySts.

::;, Ana1~goii~ ,;:to·',=fhe' ',s~tu:aHon,'-:f6r, ,supply :anaI}tsrs;> ,agreementex1sts: 'on' ::maj~rcont¢pts: that ·sholll~·,be: -ll)cluded ill' ,consuItlption 'models..-ineom¢·'·,and ',lifecycle ·effects·~.:ibUt m1;1ch, disagreement exists oIt'the best waY' to measure thecon~~ts:~, ..' ,

<'D¢ri1an~l:~nalys'6'S using act hot;':spectltditi6~ ·witii·, ~ecortq:aty, tili1e~s,elies ,ab~,ervafio~ :tema,in important.,,: Th~se models mgy be" "singlee:qu'ations,>O;r:"a part of a 'system to model a, partietrlar market, or matk~ts.

R:e~ftt studies.'usualIy"f,elate to a' ~pecifi<t 'r~s~arch ·iss;ue. --For '~xatnple~'BtOWlt ,antf:;~chrad~l< dev~lop a::}~cht)~esterol ':-lnf41>rmatiotl fngeiu using' thet1umb~r of articles published on ch{)lesterol and hum'an health. This, Jndexis ;$~J1; uSed',.111 ,a d~mand" equation fOf(tggS: 10,-estimate '~he "cnolesteroleffe~t~~~.: ,,' " ",' ,,;:, " '

'TwC:) areas ,.of food: demand 'researeh'have received 'much attention in'tbe.'·pas~ ::15:':years~,: One is ·stm~tutal'e~~ge'in, the demand f(jt',ri1eats~

'Co~fficlentsd~eptesel):ting the;dem~tld",sttu~ri.tre f6i':meats' appeat )lot,Jo :l)e'st~~le:-gi\len Jhe":mpd,el spe¢i{iciluC'tRS and ,d~ia sets u~ed:;, ,,' The: 'lite:tattlre 'is'filled"With::c6Ilflittl~g,r~s:a1ts :~aho:tit 'whetbet s-trij:cturil change has ,ocCurred~n~kdf>sQ,.:,:Wbe~,::{faf,'$, ,&utn'lttary ;:(j;f-;studi~s ',&¢¢ 'Bust; ,~nd (Qr. :::tt" cri:~i'que 'af'strUctural '~hange:-:stu.dies: see ,Alston and :Chalfant '1991). ' .

A s:e.cnnd area of note' iIi the past 15 years islhe :study af :the effectsof advertiSing on the demand for, generic commodities. These studiesemphasize"the distributed lag relatic).tlship between cha~ges in advertisingand changes in demand (e.g., Liu and Forker and see the annotated

1~

l)~bli~gr~pJ;1y :U1' llUTS~' .af}c:t .Fp,tker}.... ::The, re~~~,:::$u"est -th~t::advel1ising,g~~~ran:Y>,itlCI:e:'\$~S :qem,~d :::an~: .:Jhat the :'(jt"tjrfium''~dveJti~tpg; level:, :is:'s()me~~e.:~J~tg4}r., tff~n.:thie::'~~&~#:tg-4e~el.·' ·Suep. .:reSults ::are"'·~(jwever~.'subjectto" :W-e:-.;~me, ecpn0111-etrl~: ,:-p#falls:. ::6: .,. :()tber::::;p>~(:e": a~-se:s~: -;:, :',;.:PO~ibl~'oo~~n~~ritY ,,·p-etwee:n ·'aqvertisitl,g: e~,~nditures.,<and ,t?>tber ,:trending :(but,PQ~$U~.lY:- Q~tt~~) ·variables. is '~ ,p:~rt~qll~u;:: co~cern~ , ·Comp~titive.J~:ffe¢ts.::0fg~n~r\i~::-~dYe~i,singi:>S:a,y, -the :effect ·:of .~dyerti-sit~g: :pork-.::on<'tbe':'d~~and f~r

beef, are rarely exami,~ed..

Characteristics-Models~. '.~ / > A ~

, ~ ~.A

- ~ / -

<:-: Cl~s:icqI4heorY :o-f- ~tility,' m~b;ni~~:tion, based Qll,~h~ -consumption:and'J!r'J~u~ti{m::::~:fa ..bundl¢:: o(:go:ods·t.-i~4mpliti~, or:,expncit'j~.,~ost(ff.:t~e~

.al)~ses:4:i:$cus&eQ·;·j:~'-:t~¢: ,;stm~~ral::JnJ~d:e:ls,,:sec~i0-~<}B'~;ef':~ntJt~d,:':oowever~'$~rgq~d~;.::Jlav:~ ,:utiljty:::~s i1)put$.",~ntQ>-:housiho:ld::::Ptoduction~ ..:~nd:':La-l1dasterar~~4 ·Jba:~, ::goQ<.ts .are .:~E~ha:s>¢.d, .. £Ql\ ·,th~.; ,·:-util.ty· .' ~ptovIqed:':'::by ,:,:their,e~:~t~cteri~:ti:qs. P.ri<;e .analysts have .long .:b~~n" itlterested.lriJjtG~uct:qu:;nity

.~#~bjhe::l~uen~e "91,qua:~ijfy fJI1 pri:¢~S ::(Wattg:n.'lQ:~~).:::: :QUalltY:; ',:o~:,c€).~se,' 'isdef~~~4 :::t!.Y/·the.:·c~~6t~~~IS·· ':Qh:~~~¢t~ti~dcs~ ;~n'd: 't~:~se' attt,w~tes:. pliy' all:hnp9~a~t r6le' in the' detetmin~~iQti· ,:-Q-f":,.cOmn1Qd:ity, p~~ces•... , Thus",~rt~~l~:Q-ral.ec(}nQ@stsb:ave ,~on;t~;i,~-ute:d to tp~Ji~er,~mr~:::o:n: cltarac~e.risti:cs·~~1~ .(~~g., .:'Ladq:-:~d Su:yann:urtt). ~nd: :h~Ye" :~$timatep, :·the demand, forn);I:~e~~,.J}r:Q~bi~r Cbata~t~ristics'(e:.g." 'Aq~bln ~~~tOam~l)~· ,:.: ',::;. .; -;: .

-;: ';.;" '-. 4ttf~butfs, .~u(b :~s .p~~,~i<;i4~, .. cort~a,rilipatiQ~,,:-, can: :~ave ne:gaMveefte~ts' 'on- ':-pIJcie:s~' 'and' informaddn ',~bou~ attributes ~n:,p~ :un~ertaipL;~ria'P()~~jbly ~syrijmetric (i.e., markets :(q.r qefeedMe 'goods, so~ciflledi~le~dnSU).A:I:~~~l~4tq~~.tion .i~ :~he cQ~t~. and., lwnefit$> Qf:m~asuriJ1g: ,ch~t;aetetistics;fQ~:,:::~~p\~,. ,,(;:~" ,rehl;ti;yely, '~mpJ~:" m~~l!f~$:: -ill1Ptov~- ;t1l~;:::pricl~g ::of:'::~Qg'~~~Cf$~,~,i,{a4Y~Jmat': ~~ "a~ ..)~ .:~es.~~~g::):~~-::~a(ld: ~~ety· "faJ;~$:Jn.: :this. ate:a. .llI~·>·~~(~q~s:,:of. '~~#:nPQ~~lttp~i(jing;:~~" tn~~~~~g>~rQ~:rs J$.;.::~ritlj~t:t~,~~arth'.::tF¢a,: {~~~~,;' f~t, cQ1,1:t~#~ is.'~,·.d~ter:rbi~anf o~~lk.:pti:¢~s};: ~~d .:n~C:kstaeLsh~W&~~t:qi§~~~ll:lg;:J,9~:. q;l:C:\liW::.Pf~~~:,g~~~t:~l~YJQW~t~::,w~l~~~~::' ::;Ana~ys:ts:::$JS(}:'ha~e e$~m~ted' the impl;.icit :pd~~s' of :charaet~r:istic$ ~~ ':$er:vi¢i~s .etnbhdte~t:.fna ,£'ommodity (e.g", Carl, Kilfner and Kenny), and in particular, sincefede~~l. g(~rl~~. are ~~~med·, to ,imp-ravc market ,infotm,ati-oll~:' price- analystsar:e ,i;Q:t~r~:~t.ed in the ..relationship .between gr~de' .leye;ls and .prices .(e.g.;Bmrse-~ ,Or~nt and Rister). Clearly, the effect;s" 'of commodity

char~e:t~ris~cs' Js "ari important ,'area of ·r:esearcl), .but the ,:topic is su;ffieiendynovel and ,extensiv~.that an 'fu",de,pth disCUssion. is not ':attempted-:llere. < .'

Mat;kenn,s: 'Ma~~~n§',: > '"

" ". "St,1b$,taIiti~l ,research' lIas' b~~ri:':conqu:cte~:':Otl "q\lestions relat~a'" ~bprice ,~ffeteficts>b¢tweelj' JatIDe:df'~d: coliS~ers.Airiong ';t~e ,;ql.t~silO:I1s."ada~¢:s:s~d :~t¢,;-the;' fOIlewing: '\Vhaf ~XP1~ps:':die" l~v~:J or 'margw: :M4 ":ftt:¢W"

:~t!\i~~~~;~e~i~\tt;~~l~;~~;r~l!~:lib~t=r~~~~~~li=~~~~::ky~~~~di%h~:=:;~~~;~~i%1~'li=:cl~:<.'acrnss:::fuarKeflevels>:' .. ,',', -: -:', ' ,::::' ,.,:.'", , ,. , " :-:-;". ' ,,>.' ,:' . :",':

• ". >>' > ,. > ~: >~ ~ • > / > ~ /

".

=:ia:L~!~~!'\i~~f~:~tr~~~~:y::!ta~~~1d:!~T!~~£Jl~.i~two' 'inputs ~re'<a$suri1ed':to be used ,(rt:::r1Xe~t ':prop.oI1fo~ o-:Vet'''v~i~g ~¢v~l~ ,of':quantiti:es ':~atketedt': and' tht .Supply ()f 'fuark~fit1g < inp~ts~ "~si::«$~ilme.d·W .b~· p~~¢¢rl)( 6:~~stic~ .'ntis, ,the, farnt4evel, din~(r ;de~aij~ '~-lS ::'QPl~$~~d' ~y_stibtt~ct-ing:::the, pef,·tU1if 'matketlnt('¢Qst~·>:trbm .' the:' r¢=tarI ::t~~ina~d:· ~#cti(}~; ,and, if the -:r~latl' demallu is a ·Un~ar:::futi:edon, then, far:mAe~~I' demand 'is "a <

pat~ltel l~ne' h~~6V?, :the::retai~ mn~ct~bn.' The qualititie~:";at,the': tW({lev'~I~ "are~er-~ly "adj:Q;ste~ :for'the::~~sufu'eo £~ed: pr~p0t~pns(e:;g,:, 2.~:_PQ~~uJs' 9:fb~ef ,-~fJ~:¢' -r~n~{eq~~1~)~#~)p~~~4,::jp~~~~~~r~fi~·;)'~~~U);,:': ':I\:I:~g~~<¢.b#g¢. :~¢,¢~~s~:':'

, 'R~~)lffl:t:)1}~~~¢:~i~g'::c6~t~ :cf:i~~g~:::(f6~( ~::re~ew'-:~n~ s~~afY:;9~ '~on~p~~)~e'W611lgenarit "and :Ji:ai4achtir :1989; ''for an: anriot~t¢q'" :bibIiograp~y' 'se~Wp:hIgenant ~d :H.aidaeber H}:91);::: :.:' , >,' ',,' ,: • ' ,

. .,::Qle f~~d' pt~PQtdons ,a:r~rnent ,is,p~tl1ap~,. piaus~ble. .,:f~r foodPfo~u~ts~ ''-since:': it is '4Qt.' 'imrricidiat¢fy: 'obviou& ''that ';fooa ~~lll;lfaciu.rer~. :~an

'-su:1j~~~tU:te 'b~tw~:~~-:th~ :twQ ~PQ,a~ e:*t~g:ot1~s; '()( lllP~~$· 'I~~~~d~ ~~nY-:Qf~li¢'ret@ir :comuinp~i6~':;seii~'s,' p~~;l~$;~¢~t :~1' th~,:;tJ~P~ :an~:: l)~~~Q' ,9r;r :~:~~~~sh~~t$;,':t~af' ::use. :fiX¢d '~~:ffici~~ts' ',(fe~~ :::~~$Yffle fiXed~"'pt~pgn~Q~r:)ptra~~nrm ;fartri~level ' quciritifies: ':"lo'- .fetail'<·:di~aPP,~~ra:n<;e :{consUIttption);NQill.ethele$Si" as "'WQbIgen~pf a~~ 'Haidacner '(1~~9) pOiIi:t: ',out/ ~e' :':fiX¢dPt9po~ti~$ <a~~t:,:p~rfe~~ly' ~Ias~it, :p()tu~tmf;t~pu~ sli~ptY:':~~PW~,f,~~i1sj*~f :~~, '"~eaJistlc. They-,Q~velop ~.. cel1ceptual al,ld" 'empmcm' >, fr$~work

et:GphaS~zing ~he retail-level$upply ~.~ far~:4eve~ '~e~~!1~,' ~~t~qns> 'oftm~:du':tion:,::the6r.f' 'b ~':t:{ .' sUfuing:thar :£ittm;le*e:I': $'. <', ': k>: r'.:::pt detenmndthri$j.:~unt~st~~~ed:::t:dtt~d~¥ohn" 'equ~~6~:;:~~e:U~~~t ':h~:~:f~i '::pri:~$ ~:(b~rlce~ maw~J 'a';~nttidn, of.'fatrn 'outpu;t, :'ri(arkedi)it ~oS:t~~·''t~t~il \tem~l)d'sh:i:fters',.'and·,tre~d;' aIJ: of which are assu:~~:d pr~de,t~tn:nn~tt, >':Th~s~::tw:ofun~ti~~::fo~'eight f090 gto~ps, ~re also, fitted ~th s~~try'~~:,consta~t

returns to' "scale . :testtictions~ Us~ng '. annual dat~ '. W<!hl~efta,~t and

~;~:

lJ~Jd~cher: (19&~,.., :p., ~p). cO~91~4e th~t nfQQ~." ma~e:ti~g J)eh~yior. C~~ .pecharact,~~~~: as»epn:t:p~tit~ve.with ·~~~antJ~~rns to S~~,.~t

It is possible that since buyers of farm, commoditi~~P9t'enti~ly f~c~

input price ris~ .changes in the level of risk influence the siZe of marginS.~r:Q~en :et ,.~~ ,,.find :' :t-h~~ :.'. I11~ls~>tmg,':Anar:gi:~, ,,f-f!f ,\V;h~C;l~: >~~tnn~ddt?m~stjgany- :a:s,J(:)qo :ip' t~e JJ;S.' ~r.e pQ.sinY:elyt~ta~~;d)(j ,·pr1ge ris~Ji~:t Q1:~

~~t;~~~~~~t.:,md:>of ~~jtUa~tity.,~:Qf: ,~~ea~ :>~ari~~le.:." 1Jl;is,/Xe§.U~t :,i~:\~; qitp~~1ing .~velt: t~e. actl\l~·.>::~~~,-:;qf :~tuf~~-;:marke:ts. by,"m,9st ',;flour Jp~~~~~s~

·li~ii~li};il~titi~~iiii:E •.·>rls~: 'net ofth~ ,~js:k'~hift~d 'by': :hedgt1Jg:.(etlen tfi~uigh' 'dieir .risk: rii,~asure:- :ls 'base~ 'on the absolute value of price change~). '

.::::;::." ., :,\,:itt{ ::;~~taYf' m~tHf;'~~:~j}~r q»;,~r:t~~l~Yq;~~~'~' :th.¢ .Jkl~~~s' ~ of ,m'ar:gin"bell~W;i?f' ,are: .:t~PQdan~·' '~nd the· ~;fe;cfs': ,ormarket 'l~pe:~f~:C-tiQns may·:'bec~~~~:r wi~b :stjorter u;:qits,of:obs~,tyatiQn. ;:If¢ie:li ~sum¢~': t~~t.'in 1he'~boftrUn' :t~;~;::~~d, ptopprtioJ;is: ..as:~\1wp;~ion ,i~" ,.~PP~9priate" ,m~~e,ts ",~ ,not ,in~q4iJ~brli;im,t' a*d"Sf6r~. irl:an~;gei-s}lpph' E;t 'ma~1m~Q~r'~:co~ts ,wle t~<~rt1v:e:. at

Z:'~1~i:::J:~~~g~~~=;~~a~~tQl~:n:i~;t~~•.ctirre~" 'f~~~~tQ;d~s~ wqich: -then:, :r~:q1f:i:res,,~~A~:~re,ase ..ii}<i:et~l-,·~~pply' ~>th~'JI¢~t ,pedo~.". ':P1e ',in:c~ea:$e,Ap :,fet~it, ~:q:pply:,,~sults:· :ID, .~n- :Jncf~~:~e::-~~ fam)-

~'t~1i~Jf~~1r~t~;¢,t~~r:~J:~~=f~fu~~~~~~U:li£~=Ji:c(il:fuJe~~~Y~.:::'1Jnirkets; ,Th~,n, '. retJlil :ptic,~~:<are 't~e:~ted: ·;as '-:a :m~~P;;:Q¥~rwholes~le prIces. (Other exogenous changes can, Qf cour~~~ b~ > tr~c,ed

t~toug:h the system in an analogous way.), ,

tll;:H~'ien's ~ritp-itical"'modetr.e~.~t.rpdce :~ ~:"fi;~c~i9P:Qf' ,AAtrent a~dla~¢d ~li~l:es~t~ ',pr~~e~'~ ,unit ,lal}Qf· C()~~~.:':f9r .:f~~~~~' 'f09~:"stor~s," ~~::;~~ ..un~lrip~9Ym'enf 'i~~~.' "¥o~th:ly. '¢~(a at¢ u~~4,: :antI ,t~~t~s ·:~~:(f :9Qndij,cted;::,(Q:fu4idit~c~l.~n~: i'c~USaljty," frQm :~¥' 'w~o~e$.~t~jo 'fet~l le;~~~., ~n ~~he, ~ajpdtYbllt~6t ::aU, ;bf't~e .~~: fQQos t~st~d~: ~uid~ite,ctfoniil'~au:sal~W ,was, fo1;tnQ~ ,fljte.~~~tiQ~: 'of ,~u~:;lli:ty i~$~~,: ~re di~c~~sed iA .~h~· '~im;~~~~d~s ,secdcw·) -::Tb~"estifuat~~l :¢q:u~tio:~s ;:~tlggest :lags"ot,i(p .to··}our moIiths·::betw·e,:~:n w}jQle;salearid, tet~l ::ptlt~:'~~g~~.": " ',:' .'" :: ".. '; :' "':" "

........:~~r .a.nd .~1l~rn9W:~ffi:I~J.lj~Jc~~~~~ ..~~.~;Qge~~)n ••~fot~~Qtrig:;, <~1:r :~ost :'9~her} '·mr-dt1s" :Qt :ma~~tpng ,:1pargj~~,; :In, :par:#cu;i:ar,w#g~,,: ~r:e", ;~~,:~le;d, a$ ':~~Dgen~us in ,the typical marketing ·matgi~.mopeL4e:, ,~lici~ly'mo~el$ laQor supply ~hd d~m@d' fOr· the· :1000 se~Qr as :wellas 'whQl~s~le and retail 'tood ,price$,~$ shnultarie<iusly det~r~~d., Theimpl~riientatiori' of hi~ mode] u'ses qnal1,C'rly" qpseRra,tio,~ ~or ,foo~r ~, tbeaggregate: In this context, tee concludes that simultaneity is important

17

~d. ~~t. ,~age ~hanges ..are; nQ~, ,duly, iIllPortant direct .4~tenninants of foodprlc~,:,;ijh~g~~ .b~t )U$o. a;/prin,dpal ;aven~e thfeugb. ,w:hieh :$acro~,conomic

clJ:aDges infl~e~ce tlle ·fOQd <sy.&tem::~p~·>.1{U)}1 .:Lag.s: ·-are· -stlll-:important ,aridmay 'cQntmue fQr two or three years beyond th~ initial shock ~when tb'eC()mp~e.~e:· ~cle -,pf: 'infl~tionary .-eff.ects~ wage:, detenn.i:nation",processes andfe,e,~~a~ks- .into,food prices,: is, consi~~red :(~:e, :p'. '101)." 'Plus, i~- -this- vi~w,lag~.:-: :dn :::llot - .neeessatily reflect imperfections. in -: ,-:pa~ool~ food:,manufacturing industr-ies or markup prlcihR: -so much, as t!1ey reflecfdynamic adjustments to food price and wage r.ate c~ange~.

A common ;bypoth~sis' in the price tranSmission lit~r~tur~ -is ,~hatf~,·,-.Dij~~ _iJ):cr~AAes, :-:are::: :tl:ans;nlit:teo,:>W:Qf;¢:,.'.r.apidly ,:tl1:an.-,>p~ce, .:decreas~~; -,

~~:~~~~:=~~;:e::~~~~%Fib~~r=t=;rMt~·.·.of-:·:tht$- :Ijte~a(~re,:J1~s- ,a$:sumed', tl~:a;tcau:s~i(y,> rul1S,·,,ftron -ttte' farm -~(); the -wb;qt,~~~~: J({tlj~:::t~~ai1' t~y¢L,. > ,'E~dy iesult~, ~~re,<~~~,:;;:~t~ '*be- maJ9:tityfi_!rli~~l:e jt~lly,'~symmetr:y;;::W~~ ev~n. found th~t --Iie~ail :p,t*ces'J~r -~vtig¢,t~b]es 'respclJnd¢d ·mt>re rapi~dly" to:, -deete~e5 th;ln to' incteases' -In, ,wholesale prices. Recent results have mote consis-tent~y found a'symmetri-cpri.ce ,r~p$es (e.g., Kinnu.cah, 'and Forker).:.

:::; :.:,.-Hahq; (p.. ,Zl) argues ,':fol:, :a';'Geueralized 'Swit¢bing: Moder', w~ithjs'frQugh~y-",:e.quivale-fit ,of a -set of unrestricted,'feduce~..:fwm eqnations for' ag~ner,al: set of endogenotls></switchi~g- regressions relating farm, wholesale,and,·:T~taH p~ice:s:-< of a.Jin ,.rhis- -study)-meat/l ',.Basically, curten~ changes inr~,t~11,wbQl~~~:¢~and farm pric~~> ar~ relat~d,.t9 lagged PFieev(l;fiabl~s (~t~

::~ :-·:-.sp¢ci~~atibtJ: .,.t~a:t petmlts 'dif~er~nt-, responSes to increases: ·'th~,:.,.

:Qec!;~~esJ/ CPl, -and tt~n-Q . .-. ',We'eldy 'observations are used~ where themonthly CPl, is' distd~ted over, weeks. Hahn's results suggest tbat~~~fry'is especially import-ant it~, retaJl :priG~ ,adjustments." However,. hefoun4:·:evidellce ,:of asymmetry :at 'all:market levels.

, _ v~ > • ~

. :_P:~l(;e transmission studies < are highly empiricat _ FQT .exampl~;H:~~!s· ·~odeI-: ~igh:t ':b~ chat;ttterized 'as v~:~tot aut9~egre~ions -(s'ee tbn~~s~t1t#s .:sect1:ori) .with ,two r~gillIes.·' :~y,' themselves; en1pirlCar':fuod~ls:- qo notexplain :the:-.,sour~~' of asj:J:nme:try~ InQ.ee:d, tbe -models 40 not :e~faiD:' .whyany >~ag~ t1~ist~, an~l it is un~lear' _why.,weeks: -~y.e~ m~~t~~~ '~~ teq:uired' torptices-.fO:t'.:fresh..tn¢ats_ :or produce:, t€K,adjust ''10: ilew--wotmati6n even in :rhe "case o~ :prite incr~ases:. In fq~ures markets for agricnlft1i:al:;:totftrilodhies;new information is incorporated into pric.es certainly within days, perhapswithin minutes; '·:MoreQv,~:r~' :info;rmation ',is transnnlted;-.:f:rQnJ;"'futrires,to ·cashtiiittkeis q~i¢lcly (¢:~g.,. ~arofseri," Oefl~$~, ,and 'F~itis). '::Th.Q;s, ~i' ;~oMi(:fappears: to:.:~xis:t.,;between the ,empirical fe,sults:':wW:eh :rel,ite' ;cash,and.futuresprj~e;s ,and those which relate farm, -wholesale, and retail' prices~ p~icular.ly.,

those s,·tudies which suggest lags in farm price -adjustments. Perhaps theobservatinns on pri<:es used in"price: transmission studies are not ,relevant tothe. ·question. Or, perhaps, the mactoeconomic feedback effects 'identified

18.

by 'l~e ,h~lp explain: th~ ,opserved )ags. =, ,An:d~ Jit"tnS" witb <:some lUQr1(jpolypower, :1:n~~>:d~lay <ptfc:e::atlj:u~men~s,at: tlje:,wp-o:l¢sale "Of,',retail :le\iels':,ettherh~cause"'0f>~sts'-:rif :adjust$en:t or.beca~~ :afJa¢k:o:f":oo,mpetf;f#Jn.:, .'

~ ~, >

,::In,.sutri, '.,much': intefes-ting"~~d vatuable ,research:haS ':been conductedon, mar:ketipg margins .~d th~ .trammissjpu:(}f lnfcitmati6n tn 'markets~ Bpt~a::,number:, .~f:pl;];~~es ,temain, '~dA~ ,is Utlcle~t wh~tbet existing ':lt1odels anddata:' ar:e c~pable of::answedng. these :q~~tj()ns. :' : ,. .',,;: .

A>~ >,.' ~>: >< > vv' : v', > >~ > ~A ~ ~ V ~_

~ncepJUa¥~zation of the' supply of::stot::tg~~::al:e tintable'exceptions'.)' "" '

Most early models, involved" tra.ctable ,gpedaJ ~es of, ,intrayearse-asonality or of two-period, in~eryeat mv~p;tory l)ehavior. Emph~is ·waspl~~ed\Qn: :a~uaH;y:::pto.du~ed ':CrQ:p~:,.,;~#;llet :Wbh::~con~inuo:ijS, :(n{)n?p¢fisb~nle)or:. 4~s~o~tin:UQus. (s.'e:mj-perisbahle)-,·'inventories~ :.CIearljr, :demand' atS<f·.tanbe:.5e3.:sQ~al, an~ ,:st~cks': atecar:rietl:£or ~putiIluou$:ly:"prqdu=eed,commodities.,B-q.~ ,~~e~~ ::t~pi(;s,',:have, :r:e~eived less:-"atteflt,forijn:the<~griaultlJta1, ee(}n~IIJics 'lit~~~tur~::': :'.,. :, " , , , ,"

" . ,Since futl,lreS ,ma:rkets" :ar:e:"tmportant- prlclhg:': institutions 'for ~any ",f~, commodi~ies ':',:in ' ,·the' United 'States, :ob$e-tvations ¢xist on," a'e~ns~~ll~tiQ~ ';:0£ Ptjces.'::;r(tpresenting,:~the':'cas:b ~arkettnea£by a,nd "mprediSt~t ·fjI:~~r~s' c.O~ttaets. W~rJdng J~94~}~ :..in' ,his i~&e~#~l ,p:~pe:r~",}¥)iittedorit (I) t1)at' the difference between 'the price of a (iistartt maturity atld thePrl~:,:.pf '~h~ .'fiearby ,matlJ.ritY (p~' ,:t!ie ,,~~ ,::priee). ,d~fi~~',.~ ~pr~ce :of :~t-or~~e'a;ntr:(~) ;th?:t 3;, t¢l~tj~oM~ip .s:npiiJd ',e~is:~' he:tw~tn' ,~s ,pti~e :-~d, the)~v¢l'=:(Jfin~e:l:ltprle$~,:' ,·a~{: caHeo:<the, Telati~n:ship '::the, ,supply :of: st~rag~; given:,Jhe,tim~: p¢dQ4,~n~yz~:<i~ -the supply 'm-acti:on w~ ',r~latively st~ble,and,:shiftS::in "th.~ .;d~:wa:n(l: for: ,stpIilge .id~tif:~ed:t);te ,~~pply ftJi~cti(}n. Working's :$imp1cmQ:del)lasd:rnpl~~t~Qns':both.·; for.d:n:trayeat:::and, =:interyear, behavior: :of>,prices.(e~g.~ T-011l~k ~P:Q,'Gr:~y)~'''<'' " ,,'

, " Qtiqent: :n1P4~ls: ,:can', :he ' seen, ,:3;5 ::-e~tensio~,' of :'W~t:ki:'ijg~s, anaGusW~on~s' initial ',¢ifarts~ ..Iri\ienioties 'tnUSt?be" :riohn~gative: ':'an~' st<~ckS

C~()~,:: be, ',l)otFowed" from: ,the, :future:, though an a~tive 'futures; market'permits ,,buying .far' future ,,delivery ·:based on future production. Thus,.ifstocks are'snrall rehttive .to current demand, the cur:r¢nt eas:h ,:price may behigh "relative' ~o ,the ,pdce for futnre':,deliv-ery; ,the, price of storage isnegative. Positive" -though small, inventodes exist at these negative prices.

19"

:~f~;r~.~~iri~1~t~;~i1~~::~~!!ft.~~:?i:flirnp6tt@t:ncimmeariij: iXlS:ts "in: tbe;lyeh~Viof ,bf:tJj~,:,pij(;~9f: stotag¢, '~~dinventories, which must be. underst,ood and correCtly'modeled. > • : :, '

> '> ,.,.', ~

f()r, under~mPJaas~i!,:g, ~1,le "~ole ,Qf; "qemand ,~ho~ ~n ,p~~e ,beh~vio:r" b~ttli¢ir COrttn):)f,1~i6$ (~n9>t116se: 'of > titbers) to ~h~ ~1Ja;lyti~, ~nd >i~#ipirjcs ;Qf

stQr~g~ mOdel~,'~re;ltnPQi1~ntp~~¢i~~lyJ)e<;~us:e fueyeall a~tent~Qn, t(),:t~¢,:PQ~¢nUany impQrtat,if 'tole' ,of inv~ntories (relati~~ tp o~r, vari~~l~s) inexplaining pnc;e ,beh,aYior0-'

',' A ,di{f~f>~B{' &t~and" of t:he, litera:wr:.e emph~iz,e$' optim~ hedges .foriP~v{Q~~ ,declsi~p~m~~rs>~, ~~ing por~fol~o p~inclp:le~.' ~s )~~~~t~r~~uatly,.as~umes",~1mple ,:Qluecttve Wnc.tl9ns wlth.:a nUI1lb~r ,~-; s:lmp:b~g>a$~itUlp~iQijs,,~ri~etlji~g > 'ptujameter, ,',estiiij~1;es~ IJ ·,.is "riot, :poss:~ble';, ;to¢~ata:tter~¢> Jh~s ,re$earch ')l~re ((o~ ,our ~dews See 'Myers arid Thorop~Qn;~9W~k.l~8&)~",>, ": ' >, >', '" ,", ,

>~ = <

," ~"

In, this p,art ,6f ~e paper,' we e\i:aXti~~e. ~h~n)le ,of tim¢~;serie~: m0gels~ ,W~oqity ,.price ,:analysb~ ,first py ,e~amjJ;liJ;l:g the: ~me~,$edes prQpertieswbj6h:mp'S;(cctromoQity pHce' serieS-se6:m' to share, and the~ by consideringappHCitfi6ttS,~nd ~mVl~<:atiQf$ Qf the ~~>shlts. ' ",, , ",'" '.

ti-~e~:$~rl¢s'Pro:Rerti~~of, ~QrrlJnoditY ',Prices>~">'A~'< >~~ A'. ~»

;' ," Loo~ng <~f,-graphs, ·:or:.,co~oaity ,p~i~e ,t¥o~~ments Qy~r: ,~bi~e~::,()ne ,'~si~edl~tely struck by me high 4egree >Qf:positive aU:tqcorr~~ti()n.j.n;,piice

levels.' Another fea,ture of pri~e ~(},v~m~t\t$:"i~ that, ,t~~Y",h:ave ,oc~i9iu~~,~~,¢:s; "1he~e,,'~ay' pe :as~oe~at~d With < :§:~~n ;sto~~s -rehifiv~ ';to demand'::6;r--P&ll~ps';::~r~ :(~s~ciate~ ,\\d1h a,m~Jor r~gi~, shift' :in the "u~d~t}ytng;:market.F4f "cQ~Qditj;es ~Ubject to government' $Upp:ort 'Pt9gtaiJ1~, ptic~s

sQIjl~thtl¢s, ~QUQce: aroiirrd th~ pri~e ,floo{~ indicating'.'a trUncation -iIl:- th.~u:ndtdying price:'distrib*t1o:ti. .' . < ""

~» ~ ~:~ "

.: < ,pynatnic stro~ttiral. mQde'ls imply autocorr~lation, though not-ne~¢~$~Iily ~ikes ,in (;oJ11,mod~W pr~ces, )~pd' ~Qme ,S:tr-uew:r~l moqels 4~aleijj~f~itlY\Nith ;tb~ tr,tiri~at~()l1 of .price: "diS'~ibl1tfotl~. Adyailtes in <ti.~e7$~i:i¢sni~~~~ds,::." ~t~,: ,hp~.eye~, provi~'ing n~w -- jtJ$mJ#~ ~to' 't~:e .. ,1Je~~~6( ,ofcti~Q.QitY' prices (and ass:o¢Hited' ,vatiil:bles) 'ana c.asting'dQubt Qn"someas:~tfuiPt~,otl$, mad~ in. ttaditi~n~l m04els. But it>snQUlil ,l?;~ '~:qt~Q ,~t. the~~t~~t><iliat"mQde:tq;;~iri:t~;s~r,ies' ,rilethP9& ,~~ "'c~~o~y ,~~ppli~~' J~. "P~~~,' ,<>:bsetV~~t~~J*ign !tequenci~:s>,;<e~g~,- :4ai:~y: Q(w~¢My}Whi!~,. s.~nj,;~r~l' 1ll0~~~~are' ¢(t-~onIY app~ie~'to: data'observed: ,~:f 'lDWer"fre:qo,en:~ies' (e.g~} qu:a:rt~rlyo~ atmi:1ally). ," '.' ,,' " ". ::', ,,' "~',, "

, StothaMic Trends~ Early attempts to model -the, ,autocorrelation inCQ:~odtty ,prices with ~. tiqie·~eries apptQ~~b inVolyed fit~~qg ~e·~~nrii,nisticline'ar .trend~. Iftlw'eyet, it soon be~a~e 'appat~l1t thai. predictiQns trQmsu¢n·· simple, :models were i~accura~~, p~omp:t:ing',a, ~eareh}or better m·qdels.One way < to ge:rieralize the deteriniilistic trend > model' is to assume a

stpcll~tj·~" trend, wbl~h .incr.~ases . (Qr deQf;e~s) ..by ~ giY~n a$QU:~t Q:Q

~~»~~~~~=W·atSon}.. .:Formally, the Dotl:on of' a "sto~hasdc tre:nd' can 'b¢ niodit~d' as a'r~~om,W~kwith dpft

Wh¢.t~<Zt' l1~~s::(hlit~:::yarian:¢e~: :~~ ~u:t9¢Qv:adanc;e$ tlJ1U ~. :distdbtttjon :~hJ~h

~~~~~~#~:~~~~~1~~¢=;s~:i;():~~l~~lnd" .,·1'he:·existence. ~f 'sto,chasfi.c,'ir~nds. in·.~dmmodjty,>,prices, i~:,~o~i~~erit:

with: th~ use: ,'of .'AAI:MA ,tnqq:~lS~ .:P9PUl~ze:d. by :~ox,. ~l:19, .Jen4¢hj;~, tocl)ar~ct~;riEe,~Qnuno9~;tY"pric~ data. "ij:~*etidg~han4::Nelson: :h~~~ st)owu::tbat~ii)(:YW~!~J:~,:~iji~\l:, ¢~",ll~,. m99~t~4_;~,~ ,~~' A;g~~.;,p:r9~e~~ '~t~~ri9~~~r: '~fi~t~gr~t1()~', one' H~e~:~' r:~qlli~es' first; :dj(fefen~iitJg::to llniuc.e:..s,tationar~;~) ~~~

be:::t~pt~~~n;t~d;)~~ ih~ .'SUIfl of :a. r~nd~nf~:al~ '~9r:npon~nt ~lJ~< a .stati~~~CQmP9n~*~., ..~us, r.~~e,~~h! ~h;icll, has fOllna .that o~ce-iIl:tt1:gr:ated AR;I¥Am9~~~:;:,:pt~yid¢ :·a tts~fUl., t~pr;:~·sen:t~#p:~ .of. ~l~PY .,~~QQity pr~,~>;-;$~'~~s .

•~~~J~~~c~~~:)fi~~t;~~~:~;~t~~~:t~~~~.~~...ARl;MA..i~pie~~Il>tcj:tt{:1n al$p' ;e,qilaJns :whY·· stQCfl3;S:tlc: "trends, .ate .sometimes.:qiJ~ea :un#, 'i:oaf,s :'be~~lise :tJ)e" ~~tof,~gres.siY~ pdtYnQ~~l in: the .lag QP~iatQFrepf:~s~nt~tion' ()fon~e':integr~t~~,.~~J\4A.:"mO(r~t$ :h~, a roo~ ,rh~t:;i.s :eq~alto one" ,..," .

~ > > ~ A

,. ',' -Sp~¢:~\ ]j:tJ1ita~i:o~i~;.:p:t~:clu~e. a. :detane.~' '4i~~ssion 9£ -t~~ ;lit~ratP;~:O:P: t¢s~~ng'.f~*: "s~QQb~s:tjQ t~ell~ts .... rllt,c;:t~~t~Q'.}I:eCildets 'aie .ref~~t:~~, 'to. P.eir~~;,·'.PbUUp~; ~hil$~ps iulQ."ferron;,.,anQ KWi~~kpwskf~ ~t.. :al. Many, ~( ~~~~s~·,~~S~s.have" Jjeenapplie~' to .commodity 'pti~e aa~~ (At~e~; ~,:#l1i~ ,arl4:::~y~rs;.

GQ~IDvirt)~ .~tli~. J#gh (r~qu~~cy" 'co'I1l1nQdity price dat~' tYPic~ly showevid~,nce of sto~hastic trends. The ~vi(;leQce is far less 'el~ar witb ~ual

data.' 'ne ·eWl~~:a:tion far'- this discrepa:ncy may- lie intlit' smaller numberof 'annual o:bS:¢IVatio~ typically available and,/or in ·the lQ:w power ()f unitfootrests.3 : 'DeafQfl :and:Laroque argue: that :tontr:riodity":ptiees sampl~d:"a:t

, ,3 Unit f~t tests have low power against the ait~~ati~ that the seri¥s i~ stati~~~t'b~twith a" ~oot' that' is 'close ~.o Unity. "Por the 'Di<ikey-FU1Jer'~d PhjUi~~Perr~~ tests} astOChastic trend is the nalrhypothesis. Consequently, a stochastic tren4' is ~ccepted <un1'~ss

(continued...)

22

annual frequencies shQij.ld be stationary farJheor~~~cal ,reasous t 'altbo~gh liSthey' admit,; ::this ,is 'difficu~t' 'to', disc(}.ver e~pirica:l1y, because of the ',~mallnufuher',cir::~\1tiiual oBseivaiions, typicaUY':a~ail~ble .. , ',', '

- > ~> ~," ~ ~ ~ ,

Stochastic trend models are not ttte only way to capture' 'theautocorrelation in commodity prices" In particular, fractionally integrateds~oth8$dc processes (qr~ger and Joye~; Dieh~ld ~d"Rud~btisch) ~dthe' ¥at~6v switchit)g, mQd~el ','(~ii~l~~~}: ~r:~ botJt capa~t~: '6t g~'~e~atingsttpng autOtorrelatlon' arid long, ::~Witlgs "m> data' ',seties: ::~t~p:ut' telyitig 'on '3;'pure ",~t0~hasti~ 'trend;; Atiqther' ,:alternittWe :ls':to",'~o~er:-~6~otJlly' pricenihve~rtts /usin~ nominear- dy#81mcS:: :'and ' results ,:fi(i)m' "cbaQs' t~eory

(~enh~lit~~l'.)., ,"1:t '~~plai~,,'~(},',b:~:"'~~~:rl,:W~,~~~r; t~ese',-:~~eI'n~~v:e 'triedloqs 'canl~ad: 'to :I~pro¥ed models of -the ~~~V1o:t, :Qf.eo~odl:ty pnc~s.

, > ~ > > >

': Co:fu:ovements',jtl :commoQ:1tY ':¥dC¢: ,Series'. t)lf~~re;rit, :'~()riunodity,pri~~~ :;~~~&i~:, :at' ]e~~ '4~t:~g;,':~riI#~'<tiiri~: 'p:eil~4s, .'3;: ,:te,~p¥n~/:fo::~,~ovettJ.ge~neT~,"', 'This':',comovem~nt 'i~' ,ptices>':js' ·a. :ftature ,'sharecf'-:by .manyapparetltly unrebited. corritnbdides antI has three main expl~ations(Piridyc~ ,:-'a~dRnternberg): Ffrst~' ':'s~pplf and' ,:demand ': sIlQt1ci in QnecoD;rtttodity m~r~et m~y spin over into, oth,er lJlark~t~~ W,hile this ~$: a,1:~gicd·exptan<ttiD:n fat ·co~Odi.ttes: 'which:ate relate~' ~~,~. ~ne,-anoth~~t ~i~l1~riti>pr6d~~tdlf dr', ccirisu~tnPti6n,:(e;.g.,:,:-whea("~and>"ri¢eJ~.>:1t 'Camlot expl~in~ori1ovemen.ts "betWeen' lar:geLy,' 'unrelated commodities' ,(e.g., c~ttle" <~d

c9Pper)., Seoond, tri~crQetcino'IDie shobkS, say' 'to inte~e&t tates:, ~ay af(eetall: prices .tbgethet~ :But such shocks :explafn 'only ,:'a 'sma]:l Jt;actfon' 9f, :the~¢t~¢:: ,~qinQveinerit" in" 'cQJA~~d~ty p~~~$ (~in~yck' Jind ,RQt~I#b~ig)'" ~th~~ p:o~s~bi1~1Y is' J:hat Sp~~hf~t9rs ()verrea~f-t() 'new jnf{}r~ati{jn~ allQ 'thi$causes" spillovers :lietween' "commodity m;itk¢ts.' 'In thj~ ',- interpretaHp~f!excess' comove~erit'\' a,rit~tlg :prices leads..to':vc>lafiliiy' tbai:'i$ ,w¢ater than'ittlo~gllt to be. II This argliItie~t also is' n;~( ~l:lY sa~tisfactory because it doesndt acco~nt--for the 'possibility of errors"of' uhderadjustment:.' ,

The idea of comove,Ill~pts in commodity prices ~an be fO;fma.lized byuSing d~~: t~¢Qry of eoitit~itaiion. '~f tWP' co~odftY ,ptic~~",each have:st~diaStic"~r~~ds,' 'a~~:l can therefore: be' -represented as 'tbe "$um of:a randomwalk 'ehtt$onent and a stationary ,component, then they' are coirttegrated if'th'ey shaie' :the ~ame random watk '

3(...continued) ..strong evidence exists against it. In response, Kwiatkowski, et aI. developed a test where thenull-:hY'i>Qthe~is is stationarity of the'series. This test 'Can be used as a rorisistency check onstandard unit root tests. DeJong, et at. argue~ liowever~ that in n1:a~y cases neither test (unitroot against the trend-stationary aItertiative and trend-stationary .against the unit rootalternative) will reject.

23

where ': ''7:~, ,=" /7... .. 6:z~ ~'; :: ThIS '~h:ar~etenzes lhe; lo~:ii·mt{ ';erttiirlbiium', ,,', ""'t , ''''''.It lot -< , , ~ ,. ~"" ,

tel~d9m~ip',;:'b~~~~l:f'<t~e' ,tWo:', 'prie~,~"'>:Y4~~ -, zt' :repr~~en~i~g -;:~tat~*nary'deViations' a~a~-:~~~:~6'::lopg~!rilf:¢q~n:iq#til#~' "',,' ';-,' ',',," ,

, i >~~>~>.> »>,~~>~~ >~> .~: «.» ..~~.>.'> ,'".,.,', <:~~>~>~> i,",_. _~» .,. ". > >:>~»>.;~>-~< . i > ,./ ~~:: ~ ~ ~ ~ ~ • > A

~~~ir1~~~~~i~~:~i~I~~·~~tr~te'~~\t~~r!~~I~~~·b~~~~,$~' ,:uny;> ,Q~~r'." l~n~~~ ",,:-~t}~p~~~~~~n 'O'f\:" Pit' :::AA~:: ,:Plt~"" ~e$~d~~.': '~h~t"rep~s~nt¢'~: 'J,y:-::':t~~):J~ngSU4:~i: ,:~:q~dlipii*rit <:' i~lat~QI¢hlP~" ',:~~ ',~: ';i~l~~ieva~~¢~. Thu:s, ' ()~. ':'c~nv~rg~s' "fapi41y.-'" ~(j' 't~~', :triI~" vaI~e "for "'~~:

NeV¢.t~~e:less, tl)e OLS es~iIn:ate ,:ge-ne:f&I1y follows :a n<>:ns:~~~d.ard

dis:tP~ution th~bryi' .'eYen' asympl~ti~l~y;:" sp: __ pi:tfaUs -'~xist- -,i~ ljypp~_~~is

t~$~~~g.->~: :s:U:¢~ ':'~~in~egtatmg. r¢gr¢,~~i~ris':>~~ygl~' )ind: gia:~gef:VP~~l~i:p~,; :~~P/OuIiarf~}r::" ;,:Tes~s' :,ftir :'·'coinl~giatit)h:' ,:'w~cally" ',involve' :"~s(i#1~t~ng"-;:tb~hypothesized long..rqn"'t~.quIlihritim' relationShip ,(as' above) and' testing ': th.eresiduals for a s:tochastic trend. If ,~~e ,~pll ~ypothesis of a' stochastic 'ti-ena"in the, er~rs can be reJected, 'then the ton~~usion is that prices are~¢~t~gr~~~d~ " Th¢':~4~:a:, ,pf ~()~nt~gf~ti~ti :~~t~:nds t.o ,the multiv~r:iate case(Engle ,~~a::Gr~8:e:~; ,Jbhfulsefl)~' '

, E~pirie:;tl test§, for coiIitegratJpn among cO~QdiW prices haveprp\lide9; ~ed IesJiJts.6oodwin a~d $ch:toeder ~d some evidence j)fcpinteg~ii:t~on',,aniritJ;g:; ,f~gionil" ,U~S~, ';'#;lttl¢f;' :pi:ice:s, '; al~d· ,Gooa~~':' usi*gJob~J~s~njs multiyaria-te te:sting fnrtn~w6rk, supports the hypoth¢~is of 'pne:",¢(;j~i~t~gra:~~ng ;ve~t()t:,:a~g~g;:Jive inte~a~c)~~;} :wveat pr~c¢~, {aft~r :adi~$ing: ,f()r'-:t:t~l$p~~~tio-:n;:~~:~t" :~if£~i~~tiiaIs)::' }I(}wev¢t;,:,AtdtrliiJnYe$dg.:~es ,:$~y~iarc~$Qdi;tY ,:'pn¢es,:' ';;t~~1U:4ing:': wheat, ':'at ',diilf~rellt" i~g~d:nal :--:~&c~rl(t~ and,con~ludes'· ,'lvat ": the' .';eVid~tice-' <~J; : coi4teg#a:tlill1 .: -is' ~eak~'::-::evet("whe!i~orisiderllig; :ptice~ -, 'Jor, the s~e:- ',' ~Q:mm6dlty ~:( ,'<Uffe:~~n~ lo·~t~Q~~,

Fttrt~~nn~re, ',:Ul:tpnblished: tes:ea;t~h' cnndticted'" ~f;tlie W6:rld' Bank 'suggests ,:t~t ~int~gtati()n a,mong 4iffe:r·ent c~odity 'prices is th~ exe~pdontathertban -the Tide..' ,", - "" .. , , :, ,;":,:' ,:" ,.. ' ". ,

'It 'j~; iRip~r:tafif,:to" re¢qgtiize" ':that ~irft~gratibi1"is_, #df :tfi~"fi~y"e~lanation ''fer' comovernent in commodity, prices. T~() pti¢¢~ ~~!::be

driven by distinct =stocbastic' 'tfe:~,g~, b1;lt .;tne' trends ~ay'st~~ 'be '~~gbiy

correlated. ~ the very long m,n these pric,esW'ouid div~rg~ 'and ~e~o~~

unrelated, but,'they could show considerable 'comovem¢nt in finite" dataseries. Alternatively, the stochastic trends driving two prices could be

24

di~tinct and uncorrelated, but strong 'cor~elations may exist between th~

stati~nary cC)~po~ents ()f the ~eties. fe·ices .correlated in this way would~~s~ ,~o:ve:,tPg~l~~~ iri.tb'¢ s~ort tUn. Tb~ prolJl~1l1,. >o~ ,.~u;rse, ,is that it ,@nbe, .eXtte.m~ly:Qif£ieult, to >,~is:tin~is,h :l;>eWieen tbe$e alternative situationsgiven limited data and the low power ·of unit root tests. <

Time-ViO'ing Volal~l~ty a:nd ,]~x:eess,: Kurtosis. Another stQchasticprop~rty 'of many ~tu;nmodity price series is a tendency to move betweenvQl~~il:e",p~poqs",vdiete t:ela~i:v~ly Ja~g~' pric~>:chang~~ are, ~e nQ~' and~~qU;ijc: pe!iQd~-; wll~r~ ,:Prtce .'~.g~e~~tit~: ,ar:e ,m~~h', mpte :'s~bdue~. "This>tiriie~varjiqg' volatility' In to~o~i:lY: pric~<~ is eS~~~lly, Qbvi~us ,in ,d~t~,samPle~"at,d~ily:,< ,w~ek1;y .and 11lont~h~ :Pit~tval~.:b~~: s¢~~, less, ,Qt a '<?01.lce:mit1:::qu~e~IY, ..~nq/;~~~l, da.:ta:~ /rifu¢~v~~g vQl,~tnity :is<cQ~l~t~nt wit~, 'the.,~~~~~ti~: ':~(a ~f6~ij~tI~ :tre~9 ,hi <~Q~~i!y:p#ee~.", ,-I~4~ct)';m~l :~¢;s:¢~~~oif tim~~~arybilg'>.~~atUl~, in, ~o~mt1~~1y ':Pfi~es:: £dcp;~e~' Qil ,pd~e ,C~atlg~~,·in)pb1~g:>m~t,:$e 's:~(t¢b~d~·,tt:~nd,:jn\me:/~~r:i~s·;has,Qee~,,:~~;tnQv~,Pby:,:ijrstdiifferencmg.· 'The' ::d1;ifei~R~~:S us-pro}y, e~~~b~t li~tl~-; resid'Q~t :a:a~p~QfrelatiQ~~~ut'$e vadance"of the .cli~ri.ges is '-not :neceSsarily ,it: 'constant .:: ,

':':rW9 ~oinmqn ~ays of a~co'\lfl:~jng Jor time;v~ryiD:g vQla~iljty. jnco-~P4Hy pd~es' are t~e "a~tor~gres$iV:~. condj.tional be:terosce4ast~c{t\RC!!fl,~Qde.td-evelQped 'by prmle:,ail'd~,~h~,ge:rieralized ARQH (GAR,ell)mod~l ,QfBollerslev. A,s~mple GARC~"m04elof c.Qm~odi.ty,.pricechangescan be ,r~presen~ed

wlj.~r~ '. D is ,some, prob~~tJity dis~p~1?~t1on, with me,~tl ~~:rQ, :and vari-an~e ~ta~d n~,.l is aset of h1for~ati()n avail~Ql~. at time t... L This model allows thec~~ditioDf;l1 vari~ce, of price ~baug~s ,to ~b~g~· ove:r ,liW:~':Jn a ,syst'e:tn'a#:c-fa.$~~~~ ':Ql1d ");8' th~r,~:f'i:~e',c¥tMPJ~,of captur:i~ng, time~Y~rY~ng' -"ol~t~~ity:" inc6~:o4ity prices. '~liJtiv~ti~te y;ersioJ}S of tb~~ ~9M¥H ::m9~el'~a~~alsob~~n de~elope:d, altho~gh t~e&~ ar-e pla~ed ~y over-ff~~~~t~rizaripn, ast~~:':~~rnp~r ,Qt. par~m~~~Js ,~~~'~~$. ,r~p~dly wi!~,<.th:e<. or4~r :qf ,ti~e lllPdel(Bolle:f:slev" ~~g~e arid Woold~dge;,::~olt ~:~d Ai'ad~yu~a; ~y~rs 19~):1).

.-':'A: sihtple .test for conditt:on;ilJ :h'~terosc:~dasiicity' h~ be~~' 'dev~lQP~dl>;)' Engle and applie~ to .severalcommQdity pricespy:a~in.i.~ Jl~d Myers.~$~l <~~qu:~n~ :dat9 :.g;~~~raI~y display '$trorig e\zideri~e, ,Qf ti~e-varyingvQlat~J~ty. ,furthermore, -::the GARCH model 'seems to- be "effective" atcap,m$g tWs time~varyi1l:g vol~ti~j~ ~~, .co~o{lj~ pri~~s. Yang andBrorsen conip~re the ability 9f GARC'll model~, mixed, qiffusiQn-jumpprocesses, and deterministic chaos, to best represe~t ,the stochastic

25

PtQP~~~~~f Qf~~pqi~~. p~~es~: ··:;USiJ1;g..daijy,' ·data,. t~ey conclude·' that ,the'Q~~,~Q~~l;p~~p~:~;.~~St.,9ut o:(~e$~Jtj;r:ee.Jdternalives~, .: "':,

:..'~9th'eI q~~~tion. about' .tbe .: '&t~.ch:astic. P~9P~.rli~&: ·Qf· comInOtUtyprices iSt can the urtpr~4ictable cQmpon~rtt of price movements. best :bemodeleQ'·, ..as· a." draw..;·ffQm·, 'i\. nQxma1 ...;.4~$tiib~doIl:J- :Q:r .. is. ;:'SQme:' othertU.~t:rJhiJt~nnal: .as,sumptk~~ xn:Qre >·apprpprl:~t~:~::-··:.: 11l~ .jails of· ..>¢~f.titj:qal ..C:9~(>dity·»pfjc,e.'.:'4i$td1;)uti9~ <:ar~'·:.-::w:t~lIY . 'fatte~, .than,,·:tbe.' .notm~l;·'·mqj~~t~g ,~~¢'~s.s:Jg;l:tlQ~i~:-Jn tl1e..:~i§:~rib~:~i:Q~::-(O()t:dpn}. --~~rly: '~*tempts: -to:q~ij: ;Wj:tl(:tJ1~$~jlrqbl-e~ ·:Use~hWore>:ge~¢It~r;dis:tri:bu'iQnM ,~sumptions; 'sucb_as: .t~~' $':ta~J~: ~~r.e~i~~ fa~l~\ .. . ,

.~i\ii~'j~ifil{f'l~§~~firri···(~ngt¢)~ -...·N~Yert~eI¢$&t·:ARql{ ,~d ';'G~CH, ..mQditls."ge~er~ly: J~l. toc~pti.\re ,aU ·of the -excess '·kunasis.::in commooity :pric~ distcibutions~: if .'the~S;qmptjf;)n ':~f ~o~4jtioJfal ;:JlQrtn~!lty- is' ~~ritained--'.: _.·9he: ':s91u~on'>:~s :>t~~:$uw~<~h«t. <~b~. qQ~4iti()il~1~i$:trtbution :of:.:p:r~£e mo:v:ements:.:f6:110ws'-.a· ;t

di$mbq;~Q~' 'wj;~ti '·d¢gt~¢$·. of:.ft~ed:orrr tt:eatet:l as a ::pararnetC?(:'.-to. -be"estimated. ·Both Bainie and Myers, and Yang and Brors~n, cund!ude>thatthe GARCH I1!odel with eonditianal t..distribution does a good job ofmQ~~J~~g ;tlt~ time~varying v{)latilitY.. ~nd. ·;excess ·~rtosis that ~pp~ar toCbar~Cferize ~o~~·__~o~odlty price ·.secie$: . > • .'-- •• ,

.'.. ' ,cash... "V:e~sus .. Futur~~ .~dce« Bih@viot~ <:~Q~:t of ..t~e f()regoi~gdi~~ss:io:ri, o(st:ochasticPf,Qpeft~es; is ~q\la:~ly. a:p:plic~~J~ to :.¢asJ:r·~a::futuresPti~~s,; :~pi th~ means,:O.f ·th~;lWQ<t¥P~s: of ~~ri~$,';pr.o~bly-.behaye differ~tllly.A;::ltJti1te~:,·pttee->.is :~he ·e~p¢~ted va1lite,'d{ :'a .c~h ;ptice/.8t: a fot:~h:eornirig'

tl.~~t~rity 4~te, ·where tbe e~p~~t.~;tiO,rl-J~--co~.ditiol1al'on ~uirent :i~o~m:ati:on.

~eQt¢~i~~lY~ ..:J~¢;, "~W~>ct~d:: Pti:~ ·:;¢n;~rige ;jr~ro. :t~e: _~r:rent ;p¢:QQ4-. ~~~~l:.contract :lll~t#ttty c~n' bezen~~ lJe~.a~s¢;;.tQ~·:cuirent > ftttpr~s q'U~te:-:~tj¢ip:at~'S:the' 'Systematic'(exp~tted.) .thange'in the cash· price: .Thus, ~ij:ange:s .m.:pricesfo~ ·a :futur-es ·cdritract- 'conceivably-'·hav-e,no predictable, component (Working~~5~). .. ., ,

> : -, W4e:~het> :Qr 7no~ ~tur~s. >p·dc~ ..c~an:g~s. ~~tu::~Uy .cf!.~t~~: ;:p~~djctahle

~~O::!~bin ;Y,~J:Wi~t;:r::l~~=t:~~~~~tp~~:;;~··~e. :~;:th~::~~:i$t~n~e of 'tjs~ :p(~fflj~.. __bJ.tt; .a&... ~ot¢4 -:aQQ¥e~. ~e :-e\li~~Il:~~

s~gg~~!S- >~at s~c~'"pre~a> ~~ st;n~~~:. ~f not. zero. J:s. se~o~d re~(:)n. f9=r apred~c~aQ:l~ .;:(!9mpQnent i~ > futij~es. price cbang~~, is ~~ket j;mp¥rl'ect:~ons

(e~g,,~:pdces may :pver.. or :.~nder..a4j~~:t .to n~w ,inform-al~9n)., ·Acad~mic

eco~oWists- are.: :pr~~ispqsed; -to h~1i.¢vi,ng that 'Dlost t\ltur.es m~t~ets are:relatively ~ompetitive. and that' m~r:ket ,. impen~.~tiQ1l$ are ·.$:mal1.

26.

Nonethel~ss:;= ~ many tt~ders: use ,t~ehmcal imalys¢,sl which' assunte tba:f'price,changes' are pref.lretnbl¢.. The':se¢~~g~:S¥lCC~$~ ::(jf ;some' 'te¢htncal analyses: is"at Qdds wit~ ,,~ademj;c ,research which u~u:any finds small autocorr~lationshi, futures ~rice ,~hange$.{aauss'e:r."and Cartet)~:> ';',,': ,, :'

; The:·t1llpirtcal evid:e~c~j:s ::stto~ger-:that disttibu-ti011$ of tu:~~~~s:-'pric~':

changes:::bave eX:Ce'SS kUrtosis:,~' ,time;.;.~ng' ',volatility :(GQrdon~,"Ke~y(;};il,

e:t:::al.)., As, >an, alte~atiVtf:~Q m:o:q:eUng ,:\tolatility,,';as,, an ARCH &r)GAR~H

p~oe~~~~' s:~r~~t~r :and' ::rt),~~:k' ~a~~: ;~::~or~'s~~-~t~al apP~~;~¢1~:'~a AUd: :~~~t~~:' variance:, :pf: futures..; ,pti¢e·: ::cbtmg~s: "depel,lds,: ,OIl ::a::,'v~~~: ::~f.;,:.f.~of~,

mduding tUne-to-maturity, s~asotlaJitY, economic c~~~tio:~t·,a~~" ,$~~~(>~tlll¢;f~e~'::> .:':::' ,,' '",,' .,', ,',', '.' ',,' "'," ,,,. ",' ,",' ,', >, ,,,,. , ,'. ','C".' ',' , ""."", , ", ';'"," "

,':: ,:Iihp:I:i~att6~s':,'f-~:f :::gttH~ttfr~L,Jvr6~~ls.' ,'" :','When .':estim~ti~g &t.&cttir~"~WPP~y)~tt ':de~~nd:' rrtQQ:~ls~ :-·Hke, t:~Q~~~d~sc,uss:etl in ,~h¢:::fiT:~t: j~~rt :g:f, ~bi:s:'

.~ii:~I~:~~S1i~~~all~i::~~~sta~~=~~tt~;~lr.1tf~~ .up~arr:el~ted.- - " CotiSequent1y~", ihe$:e ' ,-structural' systems 'are,/,commdttlyestimated' by apply,ing:': 01$ "to- the' reduc-ed form ",~nd an instromenUtl,v-aria~les:'lIV) e:stimatoi, :-such',as'.two s~~ge';:least squares~:'to the '~~ructU:tal:

forfI:l.~' :':If: ,the,variables' are, ,teaUy :stationary, ',tb~n "-such, te-~tItrtatian,."·~i1din(~tel1¢e"-:is:':-:j:lfstified' fjti the:: ,basis" :i)f, conventIonal' ,'norfu~f Sisymptoticdistri~utidn>dleory~ '. - ' " " ,.

" '. ,.fr' "l1pw~yer,-- ;,sr»ne <::ex(>:g.~nQus ' :yati:ables.- in:,·'tp'e ,·tnod~l cqntain,sto¢hastic ,h;~~as, the:n:botp ,Vd(:~::.-~n;(t::qu*Ji:~ity, vari~bI~. ,gt~e~~ny:Ai~vest9tllastic trends as well~, suggesting' ,tWo' ·~aln, poss:j;biliti~s/Jtvfyers '1992)..5·

qlU~: 'Js ,,::that ,:tQe', line:at:: .c:omb'inati;~ns of ~st.QcbasdcaJly .:trending, ':vai:jablesrepfese:nted_:by·"the 's~pply' "a~d" d~m~nd eq~ations·li~e./ :the' ·structural' errorte:~)-, ,·have,"a s:to:c;1lastic ,·Jr~rtt.t, J~.-' ,this, .',case: the:te, ' is 'no' "~~ng~~n'·relationship :betw:een::the v~riables' ~nd ':ihe 'resu;l{ is a' ttSptitiOll5 regr'essionJI(q~a~g~r'a~d NewbQl~ .1914}~'·' R;es:L;1lts: ftom,-OI:.§· or 'IV eSlimati~n ,of.su¢p,'e¥lgations 'at~. uQtonou-sly :-unr~Ha:b~(},: ::i:mplying ,tflat '~statis-ti~ally:' "~igQ:ificanttrela~()nship~ -:exj$t> when. in fact ,th¢y: :d(), :riot ' ': .

~ / (>' " >

~ The structutaI f9fPJ, of r:e~\lf~ve$y~tems can, Qf tours.e, be estimated with OLS.

:S 'As>th~ :,£~~u¢d--'fon;n; :ipipJie~~: eil(fogertous vari-ableg' are llii~~"'cotitfj~H:66~ ,of thee~~¢nollS variables "iil'·the ~ystetii:.:, ::t~e~~:-lt' ~~' oo¢bmafioti':-~f' ~t9~h~t~PaJly :-trcndirig'~bti~·gtn:¢ianY::~J~(ffi~' '~fst~odl~iic '-6:~ntt pritt<an6' qu~:t:itiy van~ble'~ :Will"tisiialt)/fui~~'sto£hasut:--treurlS as<,weIr) ,:The, ,e~ption :oc~urS' 'w'heii:the' ~t~~ticaUy ttbridit1g"txctge~t>uSvarnmles :are comJegrafeo., with a long-run equilibiium r.eIatio~liip wlUclt·iS repr~en{ed:bythe ~aItleters in the' reduced' forri1:.· Iti this' 'ease/ pace and!ot 'quiiliutY: 'viltiaBlbs ,~ bestaoon~. '1f endngenons price and quantity vatiables d,!e :stationary, 'then tne tisual IVapproach to' estIm'ation ati~ :inference' is appropriate, even when exogeno& vai:iabl~s havestodiastic trends (Sims,'-Stockarid Watgonl~ , Thus, this case is nrit very int~testing and wemake no further comments about it.

The second. possibility is that the structur~l Q-isturb~ce;s:" ares-tatj()~ary and the,· :supply and, dernaJ:l;d ,~q1Ja~io~,t thereft)~~ J~pre$entst~ti~na;tY::~iooat ;tQ:mb:~natiQtts '-Of..~to¢~~tit~~W:-tre~~~ti8',V~#lbl~~:/:;;In' otb~rword~~, >ptic:esy qii:~ri~ities:{ ,'an(f th~'< :exo~~~(jus ::s~pply '>'a~d :,:¥m~~:d ,shiftvariables, ar6,tointegrated.,'with; the: Jobg':'rnij' 'relationship between tht;:seriesrepresenfed 'by the:':pariimeters 'of ~be:;:~upply and ·dem~d ;functitn~s~ "

.·Wha~ me th¢h~iPli~~~ons for e5tiJiRluon ~~ i~re~~ wnen$tnlctural . ,-,equat!On$' ';a~~l1Y·:;:; f¢:pr~$ePf" coi-n'tegr:~tion· :: ',;;r~la~i9:$hips?',:e~~.:,a,:J~ly,,"'" ';, ,:t,,:lt,',:e,"',:'<~,O-~,~v~,iitton,a,':l,",: lV,": ',€iSt~",,~~.,t,:}~"::~,~PP,li~d:: :,J9 "tli~;:;. s,_*PP~~,:;:,';im,>ii,-, .delnan~f',;equaut)ns ;;:re:~ins ,:~o$ist¢nf '(Hat1$~~ ;"an~:, ,r~llip~v::Phi~lip~, and'

Ilffl!~I~~r~\l~.tllil~t~~O:ry "ca~oi 'be,.' :~$ed :'j:fl'-',hypotl1e$is"J¢St1ng,:, ;~til: ,:wltflh ''Pflly~~g: ;b~, 'iaige,silii:tpte' re,sults. ' l1,pnc.eaild:' q:tlarttttY'variables ;re:aUy; CO "¥~ri:tiith 'stOchastictrends:;' : then: " tb~: ::",sta,ndatd '.'< ittfetenct' ,~ "pr6cedlires 'typi~al~Y::' 'tis~d::-::' ineconometric InQdels-:of 'col11fuodity:<m~k~ts ate ~awed. . " . '

:, ::': It,,:·turm:;. ~ut- 'thiXt;:,:·the :OLS" es:timator ''of cEj:mte~ted ': :sEfpply anddemand' 'equati<:l1ts· is :aI80:' conSistent and~:'oonverges' rap~(ny 'to' tb~ :tmeparameter:\7~'Qes, despite the 'obvious 'simt;l;ltancii~ pibbleril." Li];;:e:' the IVestimatnr, " tlle<QLS estim~to}r of cointeg~tiqg':'ielati:QnShips' :generaUy <'h~ 'g

:;:~:~~~~,.:c~~l~a:o:v?=~:~~:~::~ee:::lf::~ ..to' reduce' bias '~tr~lIpw"cortverit~oiia1asYtnPtoti~ irtferettce: ' ',,' ,

" ,,Even- if:tp~'::coI1ventiq-n~l. ,a$~~mpt~~n of stadonary,'p#c~:, and qu~~~~y~t:i~~l:~s~is:: ~or:r:~c:~~' :i'he 's~tu¢:w~:;~J e1T~r 't~p$. maY' s~iI.I ,dtsp~ay ti~e~~a~gvq~~~Hity that might be mo<:!eled wjt~ ,ARCH ,-or GARCa 'specifications:~'

S~:~h vo~atility .l~a5 tIle s~me, ~g~:t\~rJd effect on ,statisti,?~l J~fetence',:as '~Yoi~~f< lar,m, tit ,ll~terascedasticity,'"UJ';', that':a ·lbss..-' of: '~:~~i~hc§ "hccn:r:~ an~

estimat~d staiIdaid>~rrotsm~y' '·be biaseq:'~(:Efigl6). ;,:Exees:s' kUttosi$ -- creates'ptbblems" whenever .;- inference ,:'requttes .-::,a'" ,pa:rti'crnai ":dis:~fi:brit1~n~)'

~~~ption Oil ;',~he, distUfb?nc~" t¢r·ms. .Thls can"De.8: 'p~rtt~~~ar:: PI~o/~~~ 'i~maximulP:" likelihood ',e~ti~a~ion'" of :'cQ~Odity:·'~ark~t: ~~~eIs:_' :' _Ti~ne~v~~g volatili:ty: :and" exc,es's }a:Jrt(1sis can :be' 'mri-deled:; p~ametticany-::iisiilg;GARCH models. and a conditional (..distribution for 'the innovations. Ifpr~pedy,:~pe<:ifi~d? ';~~~h tlloqe,lf >~hou~d 'lead,. t,o JP9re~etf: ~ffi~'eil:ej ,~lldmore,acQfrQte, :stand~rd, errors~" ,$-ome,,:nonparametdc- m~thods; wbi.¢h' aremore robust. to speCIfication error, have ,also' ,been developed, (Pagan andUllah).

@~ec~~tin&·'/-,>

_, ~ i~ ~.~_~>~>

.. ...> ... §ttly~pl!ca~oIl$o(ti~~.~e!:resimw.Y$~t~~~!MiJ. ~~prl~~s.tnYQly~d ::tt1re~ti:~g witlJ··"~:' 'm~4el~ .(:B:rf:l;Jl,Ot ~d_:':J~~e:$Sl~t).,G~ner~~y-ARl~ ma;oel:s, :pen~t-m, :well ,~eJ~~iv~, '~Q :~t~ina~i:ve ,m~>th(jdS,when for-~~~tj:~g:-:9y¢r,::~hprt .~im~: hQI,i~Q~; ,p-arti~l~tly,:when t~e ::'U1'ld~:dyjAg'eCQllomie '~d$lne-nt~s are fairly st~:~l~; ,by:~ :pe:rfQrinanee de:terior~tes. overlQ:-p;g~r ~i~e:" :b9~izQ~~ ,-Since ARI~ m04~~~: -:l~~ly '~~Y" ~ j~ertflation

• < • ~~

».~ ~~ ~.~ >

i ~ , >~ A .~>~~>,..; ~ >

,', ,MJllttv~i~~e :'::, 'tim.~~eties 'tUOael~:~:::', ':tYPi~~ny' ", Qf ',tl~e;. :ve~,~(Jta:~to~~~ssiO:~,.f\l~) -foftrt, ,can 'he±p:::o~~t:~qm~ ~p~~:-of':~~e pf(~~~~ms::w~thunivariate 'AroMA fo:reca~~ing-.,6~u11ivar~a~e mQdelK, ,it,1;~uqe "imortJi1ti.ttionc()nt~Aed ·~n pas~ val\l:es of related 'yarhibtes, -not just th¢ p~tdcqlar ,~eries

~~m&:~:f9~~~~sl~,:::::pm9f:~~~~~ly,.·,,}l:QW~V:~t.,,>y:w~S:tri¢t~4,,;:V~,.,~Ei4e,ls::;~sij:aUYhay~· m.*=y; ;Pafa~m¢:~~rs,;:r~latiY~ ':tQ,the J~;urnb:~r,' 0t~(:l~ta:::l)oinJs; ::: ::1bu$~:':J)tiorr~:stt:ic~io~:.:are :~~9:st al~Y:~.::lle~ded' :tq--.j~~re~se :g:~g:l:¢¢s ::f;)£,',free@~t::~~d

.~r~tl~ ..•~<f:~S:~~~f:;j~~~~~;:.~tK:::~=~;~~~.,identification resttitttio-$ is -distussed,':l:n'-':iUOre:;detait:::l)eloW~' :,ldentification'r~ir'ittii)ris': als6', fa¢iHiai~,' cQndftidn~(:foiec~ti~g,':'iri, ~i\~;::~)f~~in: ,~II~~~d'bYthe partlCular, scbeme ' used' ,to id:~ntify the model.' .~oiber -source ,ofr~~~~9~iQ~ j:5 )l~i,tr(;)9t B:,~y~si~n ·p:r~Qrs, :~~~~;St~,~ ~Y .iLitt~r~$1.. 'a~yes:~~nV~Yl~od~~s' h~~~,::bee,n. shown ~9 fQre~t:l)¢~:t~r tlJ<m,~:IM-A mo~l~,< ~ndu:rifestric-t~d 'VAR· mode~s, 'fa ,some :-~I(p~;i~atiQns. '

: . ,~~fu~t,W~¥<ill 'which ti~e:.:serie~,: :ab~iysis :l1:as b¢¢n"use~, -to' J~tec~i~tCQ~Q~i~ ,'pd~~s is,~tough," ~9~Po~~t~::J9rec:~ting.., , CQmp,Q~ite:' ':fQrecastsc~hibj:~e :,:an~rnatiY:~ :~&«fces ,:, of :1~otmatl(l;n,l suc~,:as: 'AAlMA, fqt~~~ts,:'

Y~nf~t~tj.St~,;.J9Ee~~ts (~QW ~~ct~ral ::m9d~ls, JUld ,~~~r~,~i~on;':17~~!tg"an.J~p~unat ,w~.g~t1~ng.-,s:c:b.~rn~: .(G~~er ;,ang ,N~wbQ~d ,:l9.~~)-.. ,,'. :,CQll1:PQslte:,fQ:~~cas~~ "wpi~{tl~y J:~~jfo-t:m>J~etter.,: t~~~ eacn, ()~, t~:~ ',~Q~P9n~~~'.p~:~s :!~~~~

/ A~ ~~, ~, > >~ v> i', -: ,". > ~ ~ ~~ ~.. ."" > ~A>~:/.>

~> v ,,:~> >~ • >_~~ .~ ~ ~(= ,.~,: ~ ~,'

-::::~' th~; veeto~':~ut~r~gre~i~em~~g'~'Vetag~; {VARMAr iriooelien¢t~, VAR:::modelsDl;UCh: as ,.$ivat;iat~ "Q:utofygUssive' :nitovirig:aver-age .tnoods genet~,alir(}regtessiv~' lntlde1s.However, .VARMA models are highly nonlinear, and ther.cfore diffictdt to estimate:.Re~nably low order VAR models appear capable of repr~senting the correlations in mosteconomic data. Hence, most applied literature has used VAR models~

7 In practice, simple averages of the components have worked well.

Z~l

s~p~at~~¥~:'Pf1!~i~~~lt ~~~~t,~~ in~i~p~~llg~~~~~~~~.,\~:eftIo~, .W~~~,SiPthe 'compo~~te,are ':based' on',qutt¢ dlsparate-'so\lr~es' ,of 'WQt~~~~~~,.: ,,:,; ,:' ," "<~ :_= ~ , A _,. ~. ~>' _ >~ ..' 'A> • ~ A - • " v, > >A~ ~ ., ~

Q\l1s~liiy T¢sts"..

:~~f;.~!~::'J:!~~~~::~~::i&~:f~:rdr~~mat:~:et ,vari~l?~:e:~,: '~Qrieltiqij1g' ~~5t~ <'~t~ysal, rela;ti(1$lj~ps, J~ti:nd, ~¢r~,'la:rgely

¢~nsi~t~nt Wjtfr tb¢ ,~con:qI1#~,tneou( 'QJ ~i:v:~s~o~lf,)pfi(;e ":~l~t~:r:~inattQ;n ..".~.

~~ ..a~~~M;~'~1~~o.:f~~~r~~\~~g(36'I:tc~in:~&~cau;s~~~:tY:~el:id$ '.to:' ~n.., up ,'th~: m~keHtig'::cbtfiiti' 'ftom far~ 'tQ whQl~~~te:)oret~fpt:f4~:" .In a '~iyaIjate S:fudy. of 1and<-:t~~:~~~',~Qd 1~~4 prl~es r~ipps

.:a~t~~;;~t~r~~fit~1t~&;\~T~;:e~n;l~~~~~~~.wh~icaJ:/$t\i~y~ 'Thu:rma.n ~nd< Fish-er asked~: \:vhat:, comes 'first, :-the ,chickenor the egg?, 1)1e answer, egg p(i~s tJrax:rger calJse chic~en ,pti(.es.

'-v. ~~~.; ~}~~>:~ ~. v < ~ " < "

> ',: : ~p~:~~. ,the < l:p~#Y;:. ,~ppli~itQ~~' o-~' '; (J(a!1ger :,~~sality ,':test§, .i;~>eommodl~: ;:pttces "an3Jysis:~ :"jf ,h~ becom¢' ¢lear-'tnat thet'e,~,r~ >::serio:uspm~t~$~ \vit~. '~he. ,w~t~q~t{C0riway ,~~ at): ,,firs~;, <?,~li,;s'~Ut¥#n,9i~g~:,:~(( :n~t

·~~~.·i~:l.·~:_j~tf:.·~:nie?:f.'~£ii~~~~•••~~.•intlti5/un 'Of :a 'thir:d 'r~levant· 'y~tf.bl¢, ,into' ,the" :tnodel "_S.ebond,. "sta~d:ard

!~:::~i~~~it~!~~~:~iili~a·.ar:e ,~9t ~tl~l~ty pr:~~Mng.:" Tbis; :~$, p~i:~I~Iy > tJ;9ijl'Yl~~Qp1~,. ;giyen die~~~~~ Y~:~~~~~'~~~::::::~~~~ .:'fo:r :hl~:~Y:',' '~~p:gl~:.< ':pri~~:': ':s~r~es::~::::w: .. <;~~y~,st~¢n~~e ;·trenns.-, Qlye:n.. ~ne~;e·».~~~~to~her- 'Pt~~lem~,:,.-~~~re JS, .r~~~fl'-,~Q'

appt~~sl1 :~w~rrical 's.t~4i~~;. :~~~~g:, .:;Gtang.er ';c~u~~ity ,t~s,~: ,with' a,'>he~th&. 'degree of c~utlQn an~'·~kept1Clsm. . ,

< Even ;';putting these theoretical probJe~< aside, there is" still' aquestion about how useful results are froni causality tests. That is~ Suppose

~p:

~~t ,Gr~g~,r, C~~~~ity,: t~~~~ :,l:1aye, ge~~, unde~~¢n ,~n~t ,$~t, ,the "r~~~~~appear 'cQ:~t.~t~n('-Wi~l(:~om~; ::t,~:~~QrY,~r;pi~ic~ ,qett<ttp:inati:a~' ,9~~~J~at .Ill~$weean conclude: that "the theory is'valid? The answer' is probably'no. Anestimate:d, significant cau;sal relationship only provides weak; evide9cesupporting the theqry. For example, Phipps' finding of -One-way cau'saIityfro~ l~g~J~nt~ JO,}anq .pr~ces h-Wdly, ,provides ,r~~9n. tP)~~~~pt the :pr~sentv~u~ > m,oQel "Qf l~q, pric~s.,·' M .fudher <$~~di¢s hav¢,,~bo~' o~J:l:~r ~tr.onger:$p)i:¢aijQ~"'Q;f ,tnt(:pt%ent val:~e,: mo(fe[:a!e :souildl:{:reJe,e~~d by the d:~ta'(F~k).,< ';'1£ an .:Cxpect~d, c~usal: relationship is r,eje~~4;, ,however, then itcertMmy thf~WS a ~heoT:y'in doubt.· '. ' ,.. ,. ' . . < <

,.- ~ ~. ,. Iv •• ~ .' >~~,' - - -

,: ',;q~:~ge~ :::~U&~fy ,t.~s-ts ;:1ia~e{~:~¢<)~e)e~;::tt~qu~~~ ':ii1, :'Pti~~:: :~~atysis:,i~ re~erit ye~~ Oi-vell all. of the prol?;Jems, t~is IS, probably a good 'thi~g. " .

B~('iht~s:fs. (!en~:r~~iQ;n

~:':: .. ' J' tI~~~~'~r~~~¢~i-·'.V~'",:"~P'9t}ls ~~~, :be" :v~ew~ii :~s. ,,'it '~tive~~l1t~um1n~&' :Qr th~' ~~~~priR~r ~*t~~~rjo~ ,.arpp~g,· ~,: ~¢t, pf ,,~el:~~¢,9' ~ri~l)l~s.rntis, 'ail)' yali~ :=th¢oty, Qf. .cQmrnoditY price aelerttUtiat:io:n shQ~ld he capableof, .g:e.neia~i1g. "px~~, patn$ .w~i~b ,are, .. c.Q~.sisten:t, With., t11~s~, ~·stim~te(jMstoti4aL ~cirref~ti~~$., .Th~s' stigge~t~ .tb~t p:nCo'i't5trai~e~t 'V)\Rs ,:can b~'.3vaI4:ah~4' ',sOtif:~~ ,of, 'l1yP(iili~:S,es',Albqu:t: ,the· ,way' 'com~9dhy ,~~r:k~ts 'wO-rk(G6oley .@(f'].:£rOY). 'The :/;proc~$~" 'be~hs 'Wiij1' ,dat~: e~l~,ction, and,es~~ti{jn of t~e 'unCQnst'rained VAR. Then,..-~:, 's~ch 'is ;hls~jgated ,~ort1ie'9ti~$ of 'pric,e,::, :Qeterrtiliiation 'which ,are ,c.ap~ple :~f: :'WirID~~l~g :',~ge~sti;m~ttd"v~~ ,'J1ie$~ th~pr:i:e~ lJecd~¢, mairi~.ah:ied' ,hwpt;neses which' ~an~,e'tested;:;~n~fey:alua~,ed with>£utther wofk.' '.'».'

Using VAR -- models fqr hypothesis generation is' fa1r~y~ncort::trQve:l;"sJal pe.c~use it ~yoiQS ma~:y of the, ·difficult issu~s:-:.inv91ved inf~p~~~fi:g apd te$ting", eco:nomic strUcture., ilsi~g Ql>-sef\latiQn~d' d:ata, ,~,oppos~:a, ,,~o "~Jql~rimelnal data (Ptatf ari~ Sdil-al£:er,;, --,HoU~nd). ' Yet .the~;,e

gi(~~~~: ~s$~~S }!re .9tPY 'po~~p:qn~~, ,not .qv~tcom:~,' Q·~9~uS-~ ·a,ny ,hyp(}the~~~g~~¢rat~d -:by 'anmy?i:ng ,U:pC:d~rai~-ed.'.VAll. ~p~els '~~~~I.llav~ ,to ,:be {orm~lly"t~~t:~4: ~pmeb()w~ :TIulS, '~~lhe'lJsing' '~nqQn$~tciiri:e9 :vAR models to gen~~iit~,hm~th'~$es i~ ~nc~Ptt~verSi~~:: it, ~s '~~so, '~'~~ij~quate ~. a ~~ of testingd~f(er~~t, the;P!~es abQ~t Jl}~. Vf.-:ay ,cornmpdfty mar~~ts wor:~ .. ", .. '

-'v .~ ~ -~~~>.»> '.,,..V~: ~ ->-~ ~ v

Ideiltm;tattQtt iti' Multivariate Iim~~Serles .-MOdcls,->~: > ': ~ ~.: > '<,~, , : f" ;. 0 ' ~ ,"'. ~ ~ ><', ~ ·v'< ~ . > ,.

,,':.,.. Wfil~~, ,~hc,qn$i~:~i~~~::',YM-:,m94iIs: may ..be ~s~ful: £9r,.Jiyp:(j~~~~isg~n~Jl.t!~ '-u;nd, ·'.t~(a ··l¢s:~~r ':e~-t~nt~·· fQre:~:asting' :~d:,ca~~ality ,t~s#ng~., ~~y, 00ri6ta116w us, to answer' m~ny of the' in~¢tes~iQg :que$tions in pdce <analy~is ..Which of a given set' 'of 'theories or"price '&terqUI:l;ation,))¢st fits ..thehistorical data? What are th.e effects of a change in demand onequ~li~riumprices and quantitie~? flow will the tntroductjou of aprospet~v~ policy, for' 'example a 'buffet stock .scheme, affect the p~th of

f»:~r~t~QllllTI~~ty ,pric~s:? T(),'an&we.t' tbe~~; :,lti~as" Qf que~~i:Qns Q~ttlle,~c;ls togo J~eyond. y;~(iO~#·~ne~. vARs ~I),4 imPO$C -:'$9me. fQrm, ':of ;fde.c~t:fu~adQ"ll'senefu:¢ on the model. This ·use of. 'VARtnodcds 'is controversial be,cause~~: :~atitr~ ,'~d :~~t~nt 'of ,ld~n.:tifica~inll' t~strlcdoilS imposed is,: ·different thanthose typically:'use<;l to identify eonve.ntional stru€tUritLm~~elS. ' , .

~ L ~> ~ ~ ~

':,A, linear < ecooome:trie ,model: :of ,Q conunodity, :matket might bewriti~~:tp,gen~r:al:;fQrih':~-;' ,

, n-:

:BYt =:E ';BJ't;':(· Ar4'i-i.,. " >. ~.

"" ::,:~ L;'b(Q,;~ ,

··It::::~S~n:iiiiai$;:it~IVi1;'irr::t1~~~pla¢;e~t ::Qtt:ihe 'pit~a~~~~r :Itiat~l¢es<~t,,':this,";st~ge· is. :tnar"B: has 'tines: Qn: ,the'dhtgO:TJal (a:]~o~~i~a~iDn}~': ',The' tequce'q,:{unt1,::of this' ~Y$tem :(o~tamed':'by'

pr~mu~:~ipJying bQ(h, si~~~ ~y J:l"~) is,:~n ,ur,ltestdcted, VAR~ At ,this level ofge:fl~r:alitY:::tA~, ,JllOd~~,·obviol;tSly.'is: und~rid~n:tj{ietL: ,": "",';'

" "',The .', standa.t:d ,:::st~,cturq;l app:rb~ch :16: ·'id:e;ntlfication 'is to',' ':use:economic the:o~ ,'to' ·pH\,C~' ": r~s.tti~.ti~:,::pn the ·B,., ::B. '·a;nq.' A matri~~~'TypJcally, Yt is, 'separated intoelldogenQ:Us ~d exogenous variables, ande~~l:Q~~p:~ rcs~r;~~~~Qf;J;$:~~~,'~p~Ue'~>:to:,~h~:::rnQq~l,,(e.g~;:>ex:elud~',s~pply,::spift~r-sfrQ:iij' -:~ll:e:,: :4e~~tt4'. :'eql1a~~D:~);.;:/:: .Sq'~etim¢s:~'" di~~fY: ':,Jdso' ,SlJgg~ts "crQs~~'paratit:~t~r }:i~str~~tiQ~, ;'su¢h: ',' ,3.$'":the:,, cross~eqti3Jfon' ·',rest-ticiti=oUS..·:wliiclr "typ~~aHY·:.c,har~,ctetiZ~, 'r:a~Pflal ';,e~ett~tions ;models." This:-'approach, wor:kswell Wb~tf:littl~tyn:cert~irity sin:rri~nqs J~e,~e-, $:tty:ct~r:~.'{the:()tY) ,gen~nit~g,

,~~t:~; :': ''If ,,~,~cQr:~e~;;::~he9M~~:::·af,~ }I1JP~$~~.':dlf~~ :'t~6 -ide,:~ti~tati~n ':prQ~~:~~~;h~weye.lf~ ~~sults' ,m~y ~~',high:ly:" misl~~4irig :~eeause, ex¢hlsion ,res:tri<~tions'

le:~d;, tQ,:"tb~,' .Qmi~s:lQn <>-f- '}:~:l~~~n~: ,'vaf~#9Ies:«8iWs, -19&.Q)~ " Thi~, pt:9nlem is~a~~t~~~~t1:::,; ~y- "th¢, ~pp~e:~t < .'~nWi~~*~gpess ,of,: pnce analysts: ': to '::'~est,ov~tlqe;ri:tifYi~g'r~~tric~~Qnsj~ .,¢qmtn091tY ma(k~,f·mod¢ls~:.' "'"

In "~ :time-series' approach, ~ni~~ ,j~ent.ificati(}n restf.iCti~ns' ,ar.e,imposed, so' that resitlts can,be consistent .,With a broader range Df theories.This:]?~~pect~ye :ni~~es', ,~(}s:t ,.s~~~, when: ,~onsi4erabl~; uncert~ntY: existsr~garding: tl):,eJtru~>i)at~<:genera:t,i~g ;P'ft)~ss~, >Omj:tting:felevaut:-v~rda~les>can~u~~, ,$,~noJJS; ::p:i~¢,$(,anq: jt-,:m~~s ,s:~adsde~: s~nSe··'to ·;sp:~cify-: :the, n1ode,:l asg4~¢r~y:: ,~ ,p~~i~le'. :w~eri: 'u~airitY" 'ts :h~gh. "::Th~' ,disadv~ntage ;'--isi~preci$e: ,estim:ation', when the, "ftUtffb~r .of parameters to' be: estima;#ed' ishigh ~~l~:~v;e ,:to ~he number of:data PQints availab~e. Furthermore, minimal

8 Itm , assumed" that any determUUstic component of Yt (e~g'J a mean and/ordeterministic trend) has been removed prior to model specification.

32

identification may not be _sufficient to answer the questions which ananalyst wants to :ask Gf the model.

Standard VAR- -identification involves leaving the dynamiC's, of themodel (i.e., the -Bi:mattices) unrestricted, with identification focusing'on thecontemporaneous interactions between variables in the model (Le., the Aand B: ~atrices). Thi:s -precludes -exogeneity-res,tr1-ctions-'S(): that all variablesare treated as endogenous. The Cholesky decomposition ~oses:'arecursive structure on the model by restricting B to -be lower triangular andA -diagQnal. The model i& > -then -just -identified. This' approach waspopularized by Sims and used by Bessler" and by Orden, to investigate the,effects of_macroeconomic PQ~icies--o~': ~gricu:ltllre'.

, But what if in.ere is ,a '-tontempOraneqll~' fe~dback between variallle;sin:- the nlodert -It ttJ;rns- ,out that contemporaneous feedback (simultaneity)~()l~g> ~arl:~bles ~s f~rly ;e~Y-'#l a:c~(}~odate (BernaIl:k¢~;'Fa~lder). "The4y~anncs -of the ,prpcess'" (;at matticesf-:, remain ',llnrestdcte~; 'aBd -therestrictions are ,still-lmposed on the-'A and B ,matrices. A recUrsivestrUctur:e:, is' 'not- required, 'however,.'and maximum' <likeli:llood methods-canbe used to estimate the model-. This :ffiore general 'Cl!pproaeh has been usedby O~d~n and Fackler to investigate the effects -of'macroeconottricpolicieson ,agricuLture and 'by -Myers, Piggott and Tomek 'to decompose woolmarket variability into- components, .-ea~sed "by aggregate:- dertl~nd ' Shocks,aggregate supply shocks, and- changes -in' -huffer' stOCK > operations. ,

:~Qther way to.- -id'entlfy VAR 'models is ;:-to iinPose 19n9-~rt1n

restrictions-For example:t suppose that Yt contaiI$ :two variables, OJle thathas'a stochastic trend' aud pne that is'-stationary. Then restrictions' can beimposed' on the B~ ,Hi and A matrices which identify one element of n't as"apermanent shock -which is associated ,with -'the stocbastic -trend,' and theQtber element 'of ut as a, te;mp'oraty- s:hock $spciated'With the -stationary»component of -the- system. -Blanchard and' "Quah use this approacl1 toidentify "permanent ,shocks -(which' they call ~ggregate supply, sl'!pcl\:s) andtemporary shocks (which they cal~: aggregate demand sho~J in amacroeconomic model.- Notice, thIs approach- to VAR identificationrestricts the dynamics of the process (the Hi matrices), although allvariables are -still treated as end(}g~nous.

Structural and VAR models -are often- contrasted, -one as, founded onecononnc theory; and the other -as largely atheoretical. But both structuraland :VAR models, ,mu~t-:,be--,:id:e:ntified' befn:r~ ,-~b~y c~n ,a4gt~ss th~< qu:~stions

that _:~conorilfsts typitally w~nt to ask. Furthermore, identification in thetwo typ,es of model is similar in that theory- is used to restriet' the ,~ 8 iand/or -B matrices in the general linear modeL The difference lieS in thenature and number of the identification restrictions. Structural models optfor extensive sets of overidentifying restrictions (which are rarely tested)while VARs focus on minimal just identifying restrictions, in order to be

co:ns:istent,with a 'Qfoader"set. of thet>rl~;s about how the, mark,e~ ,or 'economy~~riIa:lly ,works'. 1ft::~¢tWeen ':~h:ese exttemes .ies a cQntiituuID of a~~ernativeide-ntificati(}n:;:scheme.s~:- :, , , , > ,.

,Piice :analys:~s,:,:$hQ~ld,=be:':~PPtaised,ftla:uve- 'to ,their -in~eri~ed :a~¢s

and, the" ,:a1fetnatives- -- for 'a9complisJ;1ing these "affu.s. :' ·The:: obje~~ives": 'ofempiti~~d :prf~ ,,;tti:a1ys.es:"",:can '>b~:' :,gt6uped- ::'Qtlder. 'four ,'main' :']~~~4jngs:fo(~¢~ti~g~, ,po~4Y:;:~~~ysi~~;,1~prci~ed:,:un~~~t~~g',,6f:agt:j~!tm-~:; ;~~~~~S:,il;1e~udi~g:: :t~~: ',$~ot~~~ic,,:p:rt?P~tti~s:' Q:f- _vari:ab~es~ <and .h~qtbesis, :g~n~t:at,~~.,:

Fqt;~~~i~g",:~~:,:p~~iW,:,~~l~S'~;,,~~'¢~ ;tQ::'be",t~~:,,:~~st ,:~~qp~:~u~, ':~~~1j9~~q',r:Ca$obS::.{or, 'dQ1~g"PJlf;,e;:analy~¢,~~::,~~:t;Jhe;se Ob-J~~~1~~S ~~::~~e ,,~~st;~Wffi9):It

~~#~~~:;~W:~:if~~~;~:::~. ·~~~~:~;~:~~i~:~s·~~~lY:~pp:O,:r:' for~:9~ts)t:n~l::-a:t¢::, a: q~~s~(}tl~ble, b~sis: '~O1; P()1ic>(:~nalysis~:' ,

,:.::' ,::Geri~~l, :-cotltribiitiQrls' to' ktto.wltdge attd hypothesi~' 'g~rt.eratlt1D" are 'less Jrequently:--mentioned,>objeetives, 'but' ,appe:ar :to' 'be\wbat p.rice~nalysts·

have' done 'best, afi.leasf to date. Innovative: contributions tty knOWledge>have: ,·be,en 'made; ',modeUng ,'the :eff¢cts- of ,two" regimes,',(with anif withoutprl~ ,$.uPP,Q~t~), Ot1. sup-ply. is,:Jtist :'o-ne,¢;Kample. N~neth¢J~$$, :t,b~:,~m1;l,l~~~\{,~effect ::0:£ such'" re&e~ich" is," in our -judgment, modest;,because 'little: lra§" beendon:e to, narrow· the range of uncertainty about preferred models and toidentify r()bU~t ·tesu~ts. '.', >

-: ':WhH'¢ In;tete~Jing Jd~as"bave;';~el1: :deveJoped,.,e1flP#"ical st'tldi~s ~ffeti,end- Wita. hYP9,theses .that "d¢serire: ,further, testing.. Au~hor-s do' :;n61 'always'appr¢ciate, that~' >,a lI.finar' empirical result, (jbt~neG 'by, pretestittg~ .: ,basu~Q:~' type l,exror, nQr that ,~ttettiative models' can haye, sintilar, ~~6ut'

~q~mly, ,gQpd ,,st~#s:t-ic~l:, fi:~s~ :,I?ut '~:different interp~e:tations. If.:m,any: ':pri¢,eana]Y$es' are l1ypolhes~s 'generating, then other analyses 'shov1d" behyp~~he:~iK, ,»4mtoWi~g. '9f cQu~se~" t?Uf ·dat~ ,and tools ar;e' not' ,al~ays of-sl;lffit~*ril ' ,quafitr' to' "', re:a~:b' definitive"" c~nclusi(}ns"ab()tlt .' 'a:l't~rnadve,hyp~)th~ses. :Conflictit;tg::':~esult~,c~il persist' for longpedods ,of tlm,e,aw~tinir data':'lh~~<.¢an" ·belp ,qisetfmitrate "afil'ong' the,tn. " In 'any '~e,

res@rch, c~n: help'define ,the range of'conQict. , . """-> ~ A > ,( :

:: The: ,first'f¢quirem~nt ·for" improved 'emp~dca~ ,output'- -is',a ienew:ed,;interest -in d~ta >qllalitY~ "The:-, ,na:trit~f '():f,': the' :probabiii~, d~:stribud~ns' '9f'vari~bles mij;s:t '1:),~:::~aise~i ,ittcludi~g. :~~aIysis, fQt' ~tationa:t~w ':atid-"p~ssibleoutliers. 'In 'strtictlitaI' ~od~ls, tbe 'imalysf'rilust'addt~ss 'wbe~et nbservedvari~ables measure' the :e~ono-mic·',co-n¢~pts< postulated ,:by' the ,1DQdet Thegeneral question 'is-, are the-- quality, ,and quantity of the data' availableadequate to address the research problem? (The answer can be';ltno.tt)

,., '$econq~, ,we. 'J;IlliSt continue to, try to improve lnQ4els.. Unfonunat¢ly~

s~PP9r:t~r,~ .Qf v~~~Q.~$:;:~ppr()a~~~& :~e~~. to Jl~V~,:, divided:, ,into c~~tendin:g,~atnps.. Sa:y:esia:psQi$pute cI~Sical econometricians, 'a~d, J:~lultivariate::tim:e!-:

series models are ptesented in,stark contrast to $JIuctural models. It is ourview, however, that nQ:.~~~W~ :~ppr(>;ach,is '~~t. :R~~het, mQd~ls should varywith the research problem and available data. F<;lr example, if the p.roblemr:~~J~:lir~,~ :;:afJ~lysi$:' Jif da.:~ly,., OQs.e:va,tionsJ.tim:e';5~rj:es:>~e~9ds·,are<pt?bablyg~1ng" ~~, ~~ lilIl:Mrt~nt. :.When.elther:a tl1n~fsen:es o~"a struCtUral model e~n1?¢." :~:9~qet~Q,~ it ";l$< impi~rtant to :appre;c~~te. tbe, ,simUarities" Qf the",:two~pm:91#~pe~,::r:~th~xJihan:.jvs:r.£9cus '~~l.t~¢::djff~r~il~~s,., :,~:, nQte:d, a1J~y~::-bQthtjp~~<9t:in~dels,~ttte,.~ttj~t9:r:alln· ,the ~~"1l$e '~~t ;~hey:·use~"ecQno~e theory'~~4J~gJ,QJ9<g~~~t.:~~~jGl.~~t~;£t~~~i9~tr:~S,~~~tj9~.",,', ," " ",', ,'" ,',

:,. ,:,i:;:Stllc~: 'j~:e ..'true 'ma~l~};, ·,gen~tatihg" tlt~, ."Ql>:$~rtt~d' ;::tia~~ -is:.' us-uaUy,~p:~rt~;hlt, ,;t:ij~::;'h~~t~Iiical :pi:~disposition '6f pdq~.,,:ari~ly~ts" to:emplo)L ,~~g~lj're~tr~cteo mQ.~~l:S< 1s,: hi", o:ar. \4ew, ',',Qften. "u:~watt;;i;nt~dt,. :~spetja1:1y" .if :~ :~he~e~~~~etip:ns "~e' :riot cle~rly' jusHfie~l by ':the 'r~s~ar:ch .prpb1~in., Mt),delsi~~~t~1)lY 'in~olve, .simplification. and... c,otnpronUse" ::nu't: ,\to:: :the "degreepqs~U~l~; they 'shol,JJ:d, ·be·' "consistent ,both, with-' .the.Ell)" iit¢ tne:-':data' (for "adis~~si9n of 'crit~riat s~e:,. Hendry and Richard).,' The analyst .shQu.~d

d~~9nstr~t~" ~~t",the; r~~ults, -address, the .xe~~arc:h' problem .·and that they,r~p~-es,~~~:.' )l~~::,: ~~pr~y~~~nt ':QY~r ~I~~~a;~J,!e~. , ',1)#~;:: :may>,> ,':tequirecu#ffrn?.Af:fO:~, :and',r:~pncaHon ~Balyses ,.ot:tbe>.alternatives'{Tomek 1992).

Thi~d, models must be' fitted by ,an 'appropriate 'estimat0~,: 'onethq~gnt ,to pc .consistent w~th t~e. dat~ ,. generating prQce:ss. T!Jefe is,p~thaps, a ~tadox: thal' :~gri¢liItura;t. "econoID1sts. place ',considerable ·weight,on ~sing: ,·itp~;to-d~te, e~conD:nJ~tric pro¢edures, '.but se:e:m to., have beenrel~tiv-ely, l:U1e..o~cerned .~boil:t, the. potential inference 'prQblems associatedwitQ, ~onsta~ionary; variables:, ,outliers, and ,pf€testing~ One cannQt 'help'butw~*g~r;abQUf:t:h¢numper, of 'S:P\l:rio~s regre:ss:i6:t1S, that.~aye,been.p:ttbli~hed: ..

, ft?qr:th~ empjrj~al re:su~t~ sllOq.ld be, .~ubjected to ·(kbro~4; ba:1.t~ry 9 ft~st8:':0f 'ID9d:el ad~qua<;y ,(Q~,qftey¥ Do, the "as~titripti(}ns underlyi:ilg ,themo~~ ~d· infe 'estim,ator app",ar. :to ,~~ corl':~t1 ,How· robust are ·there~~~$? Ar~ _the mode~':fes:trietip~s,:y:~ljd?:, Ultima:t€~ly, :the 'researcher'sjl:l4gment is required, but this, j\lqgrne~t should,be ,:inf~rm~d 'by. in-depthknowledge' of th~ IJrnltatio~ of tb~ nlo4el and. ofaltemative models.~e~~~r~l1: she:ulQ JU§$ude, .' both th~ .innQv~tiorlS of ,:uew: nypothe'ses and theapptat.s~.o( ,~(:)~pe:ti~i' results. ~ ,i:1'{lplied: above, ,tbis, WinnOWing is .likelyto ~qu4-e' cQrtfj;rmati,On analY.se& anQ .tb~.'us¢ of tests' of :~de,quacy'o: '

~ > ,. '" ~ ~ " ,

" In s~m, W¢·· favor: a pr~gmatic and 'rath,ef 'empirical approach to priceanalysis, but, we (10'not favor' 'empirical ·ad- bocery. Pr-ice analysis requiresin-depth scholarship. Such 't'esearch must start with a clear problemstatemen~ which in turn, leads to the needed depth of understanding ofpublished research t data, econometric models and logic, e~timators, and

te&ts of adequacy. The ScbQ}ars:hip':w~'-enYision may me:an fewer publishedp~p:ef:s, 11~t. tbos~ -publ~~h~cl, w~lll:d _b~- ~f -h:i:gn~f_,qu;ality~< -Y$~nrl :empiJj~~lp~:c~ ::~~lysls'> _i~ »e~p~~piljgty:::'~iffi'c~lt Jt{dn.-- :We ~ust 'a~¢~pt' tlji~<Ja¢t _:~*~the -itnptIcation mat -future reseatcn->must he"'held to a _~igh~r-standatd'_ ofexcellence. < < < --' < ", -

_~~1,r~nc~s

A~elaja, A4esPJi 0;.' , ttPr~ce C~anges, :SupplY ~l~ticiti.e~" _wdustryOrg~$ati9~ 'and 'Dairy -Q~tput Djstribution/:' Ame~can Journal ofA&I'icy1tural.Economics 73 (1991):89-102.

Adrian, John, and Raymond paniel. "Impact of Socioeconomic Factors onConsumption of Selected Food Nutrients in the United States," AmericanJournal of ,Agricultural Economics 58 (1976):31..38.

AlstOn,. Julian M., and James A Chalfant. "Can We Take the Con Out ofM~~t l!e~~~,_, ~tudies?" Western J~urnal of,Agricylttiral EcQnQIni£s 16(July 1991):3&-45.

,. .,' " ,.. ',. . ~ICofiSl.Uner Demand Analysis According toGJ\Rf/INortheastem Journal of ~irI-~ultur~I_-and -R.esource Economics 21{199Z}:lt5.:139.' '

Antonovitz, Franees, and Richard Green. "Alternative Estimates of FedBeef SuppJy Response to Risk, II American Journal of A&riculturaIEconomics 72 (1990):475-487.

Ardeni, :P. G. ItDoes the Law of One Price Really Hold?" AmericanJournal of Agricultural Economics 71 (1989):661-669.

Baillie, R. T., and R. J. Myers. I'BivariateGARCH E~timation of < the_Op'~#nal Commodity Futures 'Hedge,!' Journal qf AWlied' < Eqquometrics 6(i991):109-124.

Baumes, Harry S., Jr., and Abner W. Woma~k. "Price Equilibrium or PriceDi~q~ilipriul11 in the Corn Sector:1 Journal of the NortheasternAericultural Economics Council 8 (Oct. 1979):275-288.

Benhabih, Jess, editor. Cxcles and Chaos in Economic Equilibrium.Princeton, NJ: Princeton University Press, 1992.

Beeker, Gary S. itA Theory of the Allocation of Time," Economic Journal75 (1965):493-517.

Bernanke, B. S. "Alternative Explanations of the Money-IncomeCorrelation," Carnegie-Rochester Conference Series on Public Polk)' 25(1986):49..100.

Bessler~ David A IIRelative Prices and Money: A Vector AutoregressionUsing Brazilian Data,1l American Journal of Agricultural Economics 66(1984):25-30. '

37

Bessler, David A, a~d'"Jou A. Br~d:t.~ ltC~usaUty ~Te~t$ 'in> Uy~stockMar:l\~ts~" :~eF~:Can: '~~~~~~kof"Agri~~W1t~l ~~~nQrii!Ys :'64 (,1~~2)~J40~144~

~s~i¢r,b~~~ A, andjhhnL;tlhlg.;Tfi~ ¥oi~a¥dP{iii~A£:d%is,"Ameiimh Journal of Agriwltural J3cOrtQmics 71 (19g9):5:Q~~5Q6. :

, (> -- ~ ~,~ > ~ ~ '," ~A " _ .'~ ~'~ ~ ~-~ >~ ,'-~ N ~ = i • ~ <

Bev~ridge~' 'Stephen; a~i' 'Ch~l~~:' ~.: ,::,:~eis~n. ," t~A;": N~w ' ,APP:f:g8¢h::" t()OeC<>$position of Ec(ul~mic Time" Series jnto" P~rtrianent"'and' 'TransitoryC()WOO~~ljt$:>"with>_:P~~#:~J~,',Att~;~#~ :~{) ,M~~~emellt -o~ th~./J3cl:J;~We~~~¢l:¢~),::::xoumal OfMQnetatY",EghiOmi¢S1 "(1.98:1):lSJ~114., " ,--, , ,,' :'"" ; :<:-:::>::~:~)~~';::>.::':'< > > :~:<"~~"<» .. >V.'<~>.-:~><>~~::~:-:";'>:<:· >~ ..>~ ~>v',,>.<:-., ,. -.::,«<./ y_y:-< ~(. " >

." .-

Bl~~f~rti~ IitUta, and Richard Gr~;~n~ IThe Almost I:deall)~man(f Systen1~'A:::~~~~J~O'~~; :~~q::,A:p:pli~t~9:~ t,o':::rQ~iI;;':~~~ps;::~::AI~~cqltur~~:'::r;%i~q~~~.'>~:~~~~,:,~?';:(J~lY;l~~:)~-1~:~Q~"::':',', , ;":'--;.":, ;"::"'.,: :- ,:::: :;)::(;::" :::"::'::":" :: ' '-'. ::,:

,~~~Ch~d~:J?liv~~r :J~~;~~~. ,~nd Da~y' Quah., .'·'rhe "D~amit ')3tfec~s ~f ~'A~eg~~~; J4~nland: :8inil::S~pply ,Distqrp~ar,.ce$=f'· ,Afueiitan::~6nronic,Re~ew';19.'(~:~~[9)~§~5+61~ ..,:,.", . '-,', ",' ,',' ," .., ", ,

,,' '~~ ~'.~~ '

Bockstael, Nancy E. ''The W'elfare Implications of Minim~m "dualityStandards It, , Atne:rican Journal. ,of AjriculturaI.Economics ,6 6(1984):4(i6"'_,iit{,::':-;: :,>- ", ,-,, "', ',' ,:,.,' " - '. ' " -,,', ,,',' '. - ',' :" -,

/ <>. >

Bollersltv t Tim. ItGeneraHzed Autoregressive" Co'~diitonalI:f~t:eros~edasticl_:tY,1,1 JoU!:'-nalQf Ec~nometrics 31 (1986):307~327.

> ~ ~ I N < - < ~,-~ > ., , > - ". ,

.QQit~s~:~~~:.f~$/ Rob~i.t~::f~_,lEpgffi¢~ ''~~d- J~ff:~~y, _,M. W:Q~ldd4ge. _Il~, ,t~pi:t~fAs~'e-t ,'tieing Mo:dtd 'widrTime-Varying Covatfances:~"->-::~6urttalof ~~liticaf

~CQ~owy 96 (1988)~116~131. .' , , ,

,~~~:; ,Qe(),ige':-E~., P., and', C!Wilym :,M. ,Jenkins. ,Time, Series :An~lysis::,FQ't¢~stht~: and "C9ntrol~. revised editioIl~ San Fqrilcisto: Holden.:;Day,1976.. . '. ,

Jita~d~w," ·G.:'E. ,Iriteriel~tioill; ;:&Do~;& tktman~: :fqt, ,Farm .',Pro<:lu~t~ ,and,II#p~icaQq~~ Jo~, .Cph~rp;l ,of~~r~~t .s~ppl¥~ ~~~ylval1iaState' U:mversityAm'~~ltura1 Eq>er~mentStatIon."nW1eun 680, A~gu~tJ~61.

Bt~dt,j~ A..~I1d DaY.i~ A&SSIer..d¢otI1P~te Fnrec~irIg: .J\n.-?-\'pplj¢ation with U.-S..tI~g 'Pfices~'· Aril¢rt¢?n"J{jilrn~l of' Aiii~ltUrilJ'&QllQririgs, 93 ,(1~81J:.l3~-~40.,_ ,,',' " ' '..

A' ~~ C 'A·, > A- / A ,~~. ~ ~<> ~~

Brorsen,}t 'Wade~' Cha~i~s "M. Oeil~,rm~~,. ~d';Paul L..':'Parris. :.;'Th:~ Liv~,Cattle Futures Marke,t and Daily Cash Price Movements:t The JOUrnal' of"FuW@s ~m;:kets 9 (1989):273-282.

38

BrQtsen, B. Wade~'_Je~~PauI 'Cbavas, Warren R. Grant, and L D. Schnake.IlMarkeu:tlg"'Matgins::imd' 'Pdc~ Uncertainty: 'The <Case ,of,:the U.S. WheatMarket'" :"AmeriCan Journal of Agricultural Economics 61 (1~85}~521-528.

~ ~ ~ >. ~ > ' ~ ~ ~ < .., > > <~

~> > ~ >..: ~ <> v • ~

Btorsen, B" Wade, 'Warren R. 'G,ran.t, ,an'(J :M. Edwaid<,H-ister. "A 'HedonicPrice Moqel for Roug~ ,Rice Bid/Acceptance Markets," .American JQlIrna~Of Agrl~n:ijtal EeonQmic~ ,66, (1984):1~6-~~63.: ',: " _,

:< ~"

BroW!t: Deborah J.,"and Lee F~' Scnrader. ntbole$~erol' Information '~dShel,l ,~8$ ~ol1$umptiQn/' Ariierican iQUiri?;} :o:(,A~'i¢uJlt1ral- ,EcOhOmics·, '72(1990);$48-5:55., -: , ' " . ,

• - A ~ > ~ , ~ >-

.~~.se~ '.:R:~eb(#i' C., :'e~ii~r. '.' '1)je:-'ECQ'~Qmics- :Qf:Mea~ :Q4~Md'~ :(;9~rencePtoceedi~gson thtt < Economics :0£ 'M:eat Dem(ftJii1 CharJesi6n" SC, October2.~Zl, 199~~ > • '.

nhSe;:,':~u~ben' C.~ "arid l~rry :t. Saltthe. flAdU!{ EqtdYal~nt "S:ca1e~::' > ' > An:Al=temative Approach,tl Amedca·h Journal -Of Agricultural 'Ecot1otriic$ 60(1978)~460-468.

CSiPPS, Oral, JL; <,and B,enj-amin Senauer, editors. Fnod Demand Analysis:Impli9atioos for f):lt~~~. <,c;Q:p§umption, Dept. of Agr. E.con., VirginiaPolytechnic and State Uillv.., 1986.

Carl, Ella, Richard L. Kilrher,' and: Lawrence W. Kenny. "Evaluatinghnplicit : ,Pric:es of I;nterme4iate Prqducts, II AInerican Journal .of:AgtitultlJral Ecooomics '65 (1983):592~595~ ',>,., > 'i. '',~ , ~ ~ ',' / .. ~» ~ >~<> ••~>. ~. > A

Chavas, Jean-Paul, and Thomas L. Cox. uA Nonparametric Analysis ofAgricultural Technology,ll American Journal of Agricultural Economics 70,(1988)=303-310, ,'> ':

Chavas, Jean..Paul, aud Stanley R. Johnson. "Supply Dynami~s: The ,Caseof U..S:_ Bn>ilers and Turkeys,}l Ameriyan Journal of Agricultural..Eco~~mi£$64 (19&2):5:58-564.' . ' ' " ,.

Chavas, Jean~Paul, 'and Richard M. Kh~mIne; "Aggregate Milk: SupplyR~sponse and Inve$tm,~nt BebaviQr on U.S., Dairy Farms., II AmericanJ~iirnal Of'Aitieultural EcQnortrlcs'68 (1986)~55-66., :

~ ~~ ~ ~ > v. ~

-, ~ > >

Chen, Dean T.~ and Shoichi Ito. "Supply Response with Implicit RevenueFunctions: A PoHcy;8,witcbirlg 'Procedure ~or Rice," AmeriCan Journal of~~culfur~lE~onom~icS 74 (1992):1~6·-1~J6. ' , >', '; ~.

Cochrane, Willard W. "Conceptualizing the Supply Relation in Agriculture,"Journal of Farm Economics 37 (1955):1161-1176.

~9

Q9n\yay~, RQgerJ~,.;,P.~V.I!~ ~w~y,; JQbn ~."Y~llag~4~ and Pe~~r"y~n.<~r:M~ehl~jl,.):Th~;:,l#ipriS:$:i~i:(~,ty 9f CausalitY. Te$tijlS;~;. :Ai:~W~;mra;l. ;~cQnp¢iC?~;Re~~a!9h '36"(19B~I:1 ..19. ','," " . "','<'" ',' .

C6bley,: Thom~ F:":~4",S~eph~n ~~~4iqy,.",.rrA~e,9r~~~' :M~qoec~~o~,cs~A Critiqne~n JQu~aI of Monetary Economics 15 ,(1985):283-308.

Q~~~dt4.'·~?,. ..~d ::0. tlt()que, lfO:~ the' ij~~a;vi~r.; of Commodity PriCes,"ReyieW nfEco-nQ:¢ic Studies' 59 (H).g2):1-24. .. . >'. '

Q~a~Q~:-:t¥g$, ~tl(rJq:~~ }~If~~11b~~~r., ..:~:Ap :N~o~t J~:e;41 Demand :Sy~tem;I'~~~¢~:rf~R~~~~i~'Re~~~70,(1~80)~3~2~~6. .: , " '.

.~'f~tid~St~~~~:'S~~~~~tl~=~e~a(:i9;!~;~~~t~~ttf:~~:r~\~~:~~~i~1h:;~!rt7i..~~iW&IJ~St~!~~~~£~l :~~p:d5J.ti.on {4, (~97fJ): Jf)S7~1077~ ..

ni6Bolo,:'" :Ft~ci~' .X,: ';and' ~Uenn:,>, p'~, ,'~~;Q¢pl)scb.. ' ~'~s C;:6~U~p~i.o~. ·Xeo-·Smo'~~h?<'~Pi Memory and' the Deaton .Paradox:' Review of'Bconorriicsand,StatistiC§. '7:$, -(19~1):1 ..9. . . .

~ : ~ ,',:, A ~ > > ~ .,. ~ > ~ ~< ~ ~ ~~ v v v

Eales, James S., and ,Laurian J. Unnevehr * "Demand for :Beef and ChickenPtQq~~&.: $e:par~p:~li~-: and ~~ruc~ural Change," American Journal ofA@,~irltur~l :E~p#?fuicl1O (t9SS}:521~532;, , "" >,' " '. -: ,,':, ',', . ", ,:

~'~ ~

! ,:. " ." • :::: ,: .:; ":: . >,. '.':.. II~~' Inverse: ,N~ost: Id~~l Depla.ijQ SyS:t~>rn., If ,

in ,,~llplied ::'t~onil:nQdin/.' ·PriAA:· ,Anal}!~is~: :>For~casHIlgi" and Matket ,Risk.M~agemenf~::?:P1:9~~~dirigs ,~:( ~:~-: 1~.4> Conf¢J"ence':··Chl~ag(),. IL;.Aprn,~? ..

,23, 1:991~ pp)402:..4tj~ . ,', ,.,',' "'.,, , , ,. .

~ck~:teinr ,Zvi.:- "'l1\e Dynami~~l of Supply,: ,:,A·,Recons~de~ation,'j AmetieanJquili~l of !\irtfUltur;al ,ECQl1~t!Iics :67 rt98$):204-~14: ',' ,

~hg}:e","R9bert' ',Jf~.'· ',~AutC)r:eg~~~sive ·,Cond.itipn~l;< 'a~tet:ri~k~dasti~jtY" vrjthEsdlhat6s of tb:e>'VariaItd~"o:f"U'~ Ie Inf1atio~ft ECOrlQme:hica,S<Q (198:Z):987.-,1007.

~~glet"»ROl?ert r·" 'an4"'C~': ',W~: ,J~ Granger. ·~CQ-i~tegfatio:~. afl(( Ern~~:,<Cotr~e~inJi:' ,"R:~preSentaticin, Estimation,.· :al}d: Te:sting~~~",·E.•Qmet,Pica,.$p,(1987):251..,276.' ! , .' .,

Fackler, Paul L UVeCt6r Au~otegression Tec~lriques for,. StructuralAnalysis:' Revist.a.de. AnaIisis Economico 3 (1988):119-134.

49

F~lk, Batryr:' ,j!:fort;fi~lY :restingc:.th¢:' Pre~~rit V~l~e -'Mo~~r;:hf :Faririlau~,Pricin~~w,,:A:ttt¢ri~a~' Journal'; Qf'Agri~lt1l:r~l: ECQ~Q~:es·:~t(199:~);J·<tQ~':· ";:~,,

~ ,Y > '">"~.'.~_:,~~

Fe~so~, Carol A. ,A!J,EvahfatiOI:1,:';of a>Di~Q:t~U~hD\l:mM@~l. Co~ellUlliversity ::Agr~cul~~hU Eeoriomi~sReseatch 83':27~' August 1~8~t ': '

~ ~ ~ ~~> ~', ~ " - ,: ~> l ',' " ~:

Gaidnei~ 'Bruce L. liFutnr.es Prices in 'Supply A1talysl-s~;f: Ambiitih: Joolnal"ofAjdcultural E5on?mi9S 58 (lQ76)-:8~,~8~.

~"""'....,..>'.......--......- .,-..,.;..;.~.....,...,----:.-....;..;.;....,_....;;." 'QptifuaI ::S~~ckPitini;:~·,Qf::':G~~i:~;::' Le,ongton'~~kS,:1919>~ " /:" ' ,. ',' ':'.. ,

Gla~ber~" Joseph, ".Pe~~r 'H~I~be(g~r, and. M~o ,Mir~da. ,t,tFourAppro~cijes ,to CQIl;1m-Qdity ,Market $J;abiti~ati6,rr: 'A' C6m.p~f-~:tive Analysis/l

,.ri:ca~}tmmal Qf:'~gticill:tur~1-:Ec6nQmie~ ,:~. ·(1?89):f$~~-<t~!~':.·"- -',' -,' ,

Godfrey, ~. O. 1-4issl!ecification T§sts in pconometrics. Cambridge:cambridge UniversitY Press, 1~~~.' ,',., . '"

G:oqdwi~~ ~arry:J<. "IMultiyariate CQintegratiQu Tests arid, the Law.,of OnePd¢~ ittlti:ternafi6Ijal: 'Whe:~t J\Iarkets;" RttifeW: Df Agiicultural'E¢onowcs14:{1992)'f117-12:4.. :,:,' /'.;:«: :; .';" - ,.' ,,.-- .; "',' c,': '",' ::",\. ";' ,c'·'.·, ': .,

Goo4~ J3atry,~, ail~, T~d. C~ .sebrQ~der. f{C~in:t~gr~tionTests.~d, Sp~tial.~rite ' I~hK_age~s: -. ::in c':R~gipn~r '::Cattl¢ MatJtets/ AitIeri¢al1' "Journal' ,'6f'Ajj*dtutald5¢ilnQmi¢s:::13::(199:l);452:464~': ,," -."".,".:-': ,';;,' .:;:;':<;::_:-:;-,

Gordon, ~.D..The Dist-~~~Mtion of pai~~..<:h.anges in Coromoditr FutuT~SPri¢es. ,USDA 'Techtilcal"BtilIetin 170:2;'l985~" ',' :" . ,

41

O:oulQ., :Jlr~ "W:. : !~At~H,ome:,:. 9>nsuJnptioll:, of ":Cbeese: A'· 'Pnrchase~,I.qJl~nc)?<:Mod~l~u ,'~erlc3n, Jflur~al,· :,0;£ _ABri:etil~ural .]kQnqltii~s '/14:(:1~92)~~5~459. ' ,

--~ ~,' > > -

Gr~~g,er, ~liv~' w.. -J~" :t1nve~tigati~g ,'cittisill ':R¢l~d~ns ~y '>"E;~o~P1tt~~d~MQq¢l~; a;nd-'Cfuss~Spectral-Metbcid$~tt:,:'EeOriometrita 3:7 '(-1969)~4,24-438. ,:' ,

Grang¢t,:,::Clive', W.': J", and :l{..<J0yeux~< ~A#:: nttrod~:¢~i()n ·t,o: 'I4~g~Me;m6~Tfin~:::Serie-s ,Models ~lt.l(.1>·Ftacti()nM Differ:enei:ngt':' JOYm#l: ·of T~:m:¢: -se17ie:sAmtl~iS;] <(l980):15..39. " , . :' ,,", :,." :. " .;.:

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.dt~~n, 'Ric:bard, 'a~(r 'Juli~ -:M.' Alst:o~. "'El~t-fc:ttie~ in AtDS Mooels: Act~dfi~tioifand 'EXteriSlol1,'~" Anietit'att', Journal.' Of A2tlculiurar<EMnQmtcs'73;--(1991)-::874~81?, ,'. -

:':HBh:~~ :-:~V~lu~:)r~ 'lPric~ Tr~~~sf.on Asymm~t11' i;n' Pork . a~nd Beef. ~~f;:k:~t&~t\}rfie·<,Journal ':6f Atficultur-al ECQ-I~Jj;mi~¢~ Research ,.~~ :No~ 4(i~90~~2i:~3tt:-, ,:. ',:: '..

H~~ttQn, . Ja;ro0S D. ftA, New Appr:oa~h to &<!~omic Analysis of,.:NQ~~~l~Q~rY:" Time Series' aild.. :,:t&e' :Busi~ess .(Jycle,·t EcoDQn1etrica ,:57(l9:8?)i3$7~384.,· . ,. ,.

,H~~ri~\~~~':~nd P. ~.·"I3. :F:hiUips...13srlm:fltion:and:·lilf#ren~e in '~odefs' ofCqmte~ratiQn:' A." SiinWatipn ;;Stud&~):Cowles:- 'F~u:nd~tit:)tf-:,l)iscusSi6h ::~ap;er,'<No~"$81;':198'8. ., ", " " '/.: ,">'.' _., ,:,."., "..

H:~~n~~:,:~~~'L~''~~f~:~t~':S(';~ttiS9~lc:!.>:~~b~~::>9",~~tf~~~::H:~::~~p~;~~U:Crf?'Ss, ;an~ 'JAuren:,L.··Oljfistt~n. ,:;A, Qa:r¢:a'$S..M.e:nt.,Pn~g .Sy&t¢nt,f9t·,<:~~~,<·

Potk- Itldil~try:1 ~etiea-ri Journal" of AgrituhuraL EconQtriics ..>61,(19:~$)~~1$~3,:1~~ '.

Heek:tltan, James J. t1Hgavelmo 'andtbe' Birth",jrModern,,:Econome.tr1:ci::: A:,Review of The His:toIY of Boononierti.c Ideas by Mary Morg~:~ Jot1-tn~l Qf,E¢onomic>Literalure'.jO (19}!?).~~7~886. . :". ' "." ..,:

42

aei~n, Ll:ale M. "Markup Pric~g, ,in ~.- Dypawc, Model ,Qf the FoodJnQllstty;t,Ameriean Jorirn3J of Agri~tlltur:al Ewnomics '64: (1980)~lo-18.

> - > > ~: _ < > > A ". < < ~v> > A ~ '. __ ~ > _ v > ~ >

Helmberger, Peter, and Vincent Akinyosoye. "Competitive Pricing and'S~.9r~g~: t)n~er Uncertainty ,With An,Appli~tion To The u~s. SoybeanMarket," American Journa-l ,of ~~ri~p1tural ,:Economics:66 (1984)=119·:.130.,

ij\~pdtY, Pa~d ,F., :and "Jean·F):~ncoi,s" Richa!d. t;IOn :the' Formulation of~mpiri~:"Mo.dels,in pyttapUc Econometri~,tl Journal of EcQnQm~trics 20(1982):~~3:t < , , -: :':' '

,Her:t¥lt,,/lllQm~ W.:-,-,~~~~n~ral ,·"l3q~i1jPriUJ;n: ~M~-lysi-s: J}f :,lJ~S." :Agricu;lt}lre~'Wbat ;:Does' 'It C()ri~i~ute1n_> :The, JOymal> ,Of' Agricultpral EconOmics~~S~~f£~_42, No. l (1990):3--9. - "', > ' ,', ," ",'.'" "', :- '

li~ll~~d,,' raul w~' :..:»t~Stati:stics and' Ca~sal 'hiterence;" JdUrnalQf ·-theAlfu:iican :$tatistical Associ(i~ion 81 (:19S6):94S~966.

~olt, > Matthew T. '~A MUltinlarket BQund~d ,Pri~ Vari~tion Model' UnderRatlbIial' Expectations: Corn and" Soybeans in the United States~tIAmerican JOUl1lal of Agricultural Economics 74 (1992):10-20.

ti91t, ,M., 'and:s.-. :V.:·:::~:~dhyUla. flP~l'ce ::~isk :~A Supply Fupctions: An _Application of GARCH Time Series -,MQde-ls:' Southern -EconomicsJo~rnal 57 (1990):230-242.

H~lltk, ::J~~s" P.' "~: Approach t<J SpeC1fyiftg ~~d Esti~~#:~g' NQn~R~versible ,Functions,'" 'American Journal of' AgricU;ltural ECQ;QQnUcs :59(1979):570-512.

Houtk~ ;f~es-'p.:, M~rtin E~. ,Abel, ,¥~~ -po ~y~n, Paw --W.- Gallagnet,Robert a: Hoffman, and J. B. Penn. Analyzin~ the Impact gf Governri1:entP~o&rams on ,CrQpAcreage. USDA Tech~ical ~unet~n 1548, 1976.

~~'~g, ::~u:q ,$~" ·U.S~, ))enl(~nd' '!qr F~o4:: -, A Q>tllP~$ Syst~~ of 'Ouantiti'Effects on 'Prices. USDA Technical Bulletin 1795, 1991. "; " c

~~s~",:S~~nf ,att;d. -:O~a~ ,D~",For~er. Anllotat;ed""W,obli~:grap~y of GenericcginII\Qdity J7omQt1on' ~esearch (revised). Cornell Unlv-. A _E. Res. 91-7,t991 ,"<> '" ,- ,c

JaMs, L S. "Cattle as capital Goods and Ranchers as Portfolio- Manag~rs,1lJpu~al ,?f PQliti~l Econom\' 8~ (1974):480..520. ; ,

Joh~riSen, 's. nStatistical Analysis of Cointegration Vectors," Journal of.Economic Dynamics and Control 12 (1988):23'1-254.

J~:~~9n, <:S~~nl¢~:<R:;~;:::~~b,ai~\A.,H~san~.:' '&i~:,~i~hat:~ "D. :~r:e~~)"Qe¢~d',~~#ms; J~s~hnation; ,~e~bo9:s :and. Ap:p~it?adfl~s./Alrics~- :--''I()W~: St~t~:::lltUv~Press; -:~9:84~'

Jijst~ .:Richard ":IS;- -,'An: In.\zes:tig~ltion' 'o{ ~b:¢ Imp~~c~ of. 'Risk itt' Far:mers'n~¢isit1ns,.. Am~rtcan J.QU:tn~l pf Agricnltttra~,EsQ~Qt!ll~. 56 (1~741:14-:25.

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-~:,;. -_::~ :'!:;>?:: :'i:'::::-: -_/:-::,: :-:' ," ':::, _:-:--;':, -,--~::: ;::~~O~s~ove~ns: 'M:~~f:~~co:nQ~~' ]~;¢latiQ#§hips" 14~gnCu:l,tUte,:t' -~aper ']?f~s~nte:d at M~~ti:I1g o(>,tnt: AtiS{:r'aUan- -AgrieultuitHEe(}~ori.rlcs S9ci:ety; Qm~etra~- ~~b~- .10-'12" 199~.,

·llIi~!i~~~J!i~::~I~~t;J===~~··~~~~~···~~·.~~~r~,:,::~&yr~h~rh::.:)!I&s4¢,~ )i(:'f~~ur~s .: M~f:~~t~: ,,~ ,-Slirv~y:;fI ·~~~t~~~<:pf·Fllmtt~sM;at~~t~1i;tl911~;2(l~- 2~4. .

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Kayl~;n~ ;Mlcha¢;l,:$~:, ,_flVe~tor, ,AIit<ttegresSlon 'Foteeast~g--'¥pdels: ..',R¢:~tntDeyelQPme:Q:ts Applied' to .~he :U.8. Hog Mark~t:' t\meri'tan 16umal- ofAiticiilt~tal:E;c:O~Q~ics 70 (1988):7~1-717. "

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,::'~;i;tg~ ::R*2b~(k:: },\.,;: ~~¢hhi¢es' ':~d, :.'Con:se~~~hces," ':~e#~,e~n Joy~tl,a:1 'ofi\jH¥yltyml :E~&1l6m1CS'61 (1'919):839-848. . . " ,

Kinnl1c~n~.:_:,H6t#)<·W:and· :Olan J).. ·::F(}f~er. !'~Y:fnmetI)i in Far$~Ret~l.rrl~~,<::_t~ans.@ssi~~::- 'fQJ ,MaJQt, :--::tl~~Jj-:- :,rr{}9:\l¢~S, it- Ame~ic~n:' Jovr~~r ,<ofAiti¢u~tll'talE¢Qrib~ics '69 (1~87):185~292. ' ,,', '"

~Jrm:~$ji:~i~j?~~~Q~~~~i;>S;:alij~~:;;~~~'Kwiatkows~~' ,:l)e#is,-_ -F:: :·c~: -,l3~ ,:,:~l)~lHps;:: :f~'- S~~mI~t? :-and,,' y.~. Slriti:~:: :~'T~,~ting:t~e .Nu~r:~w~tt!¢~js :(jf;;St~t;bria1ity; A:g~~ps;t-the:;AJte~native "of:a/ll~~\RQo~::How -Sure' .Are "We nat Ec;o1;lQ:nUc Time Series Have a Unit :~'Qet?'1JQUn1al':fit::EmnQitttfttt.tP$ :$4·:{t~~4)(1~9-: l~',': ' , .. ' -"

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Ladd, George W., and Veraphal."Stiv'annunt.': f~A: -Moael"':6f:' CorisUfuei:'Goods Chara.cteristics," Am_epc9:n Journal .0£ t\2riCM1~r~ EC~)llQ~~~ 58(1976)~501';510~ -

44

4ncaster, ~ ):~ Consumer Demand: A ,New~. ApprQach. New York:C9tu)D~i~,,IJitfverstty PfeSs, .1911.. ' ,.. ';

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Lee, David R.t a~d P~ter :0. "Jlelmberg¢t. »Bs~itri~ting' Supply ':Res~ome ~~he :" ~:~r:~~eD.~~ ,<:of, ;:fa:rm, . ;PrQgra~t~,t '.Americ~ lQu!l1al of AgriWltura1EcqPOmi~,,67 (1:9~5}:l93 ..203.: ._ ' ,. -' ",.;,;:, ;-'

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Lev~dahl, .J. Will~am. Die- Effeet: ,of:FOQd: Stam~s" 'b,f .Income on., HO~$ehQl&lF90d, nm~n-~itulf~.'" ,USP:A ,te¢h~~aL;autJetin.4:j94kl~tY4~~)lY'

i;jt~~h:rL~: :t~~h~tleSf~F(}~~n~~tf~V~~r·Ail.~s.fe4¢:t~r .Reserve l?arrk' of Mitinea:poIis, :~esear¢h' 'Depat-tment 'Waddng,r"'~rr:::NQ'" r1$, ,197~:. ;>.:- ': .. ' - ,'" ," ;".' .', , ::: :' .-, .,

Uu,' .Donald j _, and Otan D. Forker. tl.QPtimal 'Control of >,Ge'neric Fluid~~, ' Adve:~s,t1;1g, Exp~nrlit,ur:es,u American], J61ft-nat ' ?J:f :::Agticulfu;ralEgoQ~m:if~ 72 (1~~O):1047."l~S-'" . " ;.. ,','

,LiUt' p(1)~d, J,.} 'H,a:rry .-l4~. JCaiset,.,Olan,:0,. ',ForJcer" ..and,:Timo~hY' D. Mount."An ::E~IWmic:<Analysis/of ,t~e :U·~S.Ge;:~eri;c' ',~ry ..;AdYertising;:l?:rog~amtJ~~g ><an.,: !ndustry .:Mod~l;~' )NQI·theastern .JOijtl1al., of '::A.g.rieultur-al ;aIidR:eSQurce ,Economics 19 (1990)~37~48. , ,.

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¥9~.~:e~) :B;; ),.~ R., 'P,- :W9avet, ~PQ P. < G. Relmberger..' !''¥l)e,-at :Acreage<$~PP~Y R~~P9ns~.- tlnde,r 9~:~ngj;~Fr: ~ann PrQgra;rns," AnJe~i~an J(}ut~al, :ofAificiiltutaT ;~co:riQmics 62 =(1980):29-..37. '

M,q~qh~l1i~ q~~~¢ar:1Q~ ,a1,ld KarJ ,D~" '1'4~ilke .. 'f:M~deli:ng the :raftern -ofS~~~~t:~l, ,C~:a~ge', ,.: ;~n,., :l!.S., M~~t" Dent~d:,? Amet~~ap;: .Jou-fDal .. ofAgri:®Uut:al 'E¢dno,~ics 71 (1989):253-26'1. ' ." ". '

M~~~~; ·Ro:be1}t J... t!E~tiplati~g: <Tim~!"~~J;yi~g, ,Optima~,.' He4g~', 'Ratios ,on,~lft~res Me;idc~ts, uJQUfn~1 l?f.FUtilf~S· :Markets,~ 1:(l~):91):a9~54:~-:, :"., ;.:

, ' """_ " c' , , '•.• - ·'T~~e ~'~:de~.J~~~onQ~~t~~~:~~~,,:~9mmQqi~tPrice Anal)'sis~" 'Paper presented 'at meeting of the Australian Agricultural~ono~cs $Qd~ty, Ca:n~erra,< F~b. lQ..12, 1992.

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My¢-rs, j{e:ber-t 'J~~,::an~k-Sf<:l~~ey':R>Tho~ps6n~',' ·,~Gei1'eralfi;ed,OptiD;1ai::Bedg¢R~tio, ',Es:dni~tiDn/' Ntretican ,:-Joutnat of, 'AgrieUltutat 4:;¢Qt1omt¢s 7t(t989)~85~~8~8~

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Neflpv~;, ,>Mat(t~: :< ~i$U9t}t,~d,:: ,M:gs; ,- :(;tind~:Jl~fu~n{l::~si~',:~~~:, Air~~~~~tai',AA-dOtl:l~t. Qj~mQ4~t~:¢~. USDA' ,AgtiQu1tuml H~nl~~oo:k 141, Ju;ge" ~95:~. "~»: : ~:~:::>~ > ,<~.>::; >~~.:>, ,~~~>:~ > ," ~ ".' •• , v y. <, ~,.> ,.. _', ",y ~ >~i ~ ~ ~ >~ A~

N~ldv~~::M~:¢~':'Pavid 'M~ ,Grether" ,and :JQse L ,C~~aJ:ho. Mal&$lk ',of"" ,·~q~q~~~:>!W~:~~#,~~ ,#&·~W~~~" New"X~~k:",A~~e:¢i~.P~~~$~:,J~~~~,-:,<

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ci~~~~~:,:::P~~~;k:::;@a:::',paut<1->:::~~~14~r.~' )~~4:~llt~~in~' ;:~MQ~~~aty' :1fi4p~~ci~.': fj,~~''Agn~lt:ural ::Pd~es: tn 'VAR: 'Models~'t Ametf~a4,. J(lUrn'a:l'- 'or'Agricidtural'Econ'omips 71' {1989)~49$-S02; <

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:Pbill*ps~ 'P..::,C. B~ :*Ti~l~ $eries'Regre.$slon with a Vnit Root/' :l2cOllQmeltiea55'{t987Y~271~5ql'-' , ,,' " , ,,' ",' ,;' ,

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'~p~t&p~,: ::1\' C:::l~t~, and ~~ "E~ ,l:Iia~S'~ri.: 'Sta:Hstic'!lln(~rell(:~: ,ip"Jn$t.m~~lj;tal¥~riable~ ~'egr:¢~s~:on \yith,l(~) :1?r6~s~s, ':CQwl:es :,Foundatioo"I)iscussitjn'Paper No. 8'69,19SS'. '

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Pin1~.:P~C>B.., .al!d.S,Ouli3dS:~ ·~i«ic Pr~perti.esofRt\&idtlllIBase.dr~$:~: {~1t">G~i,6.:t~gt~#~tlt J?;~Q~(une~t~:ca;:$~:t1'99Q')::,165.:t93~' "'" ':': ': , ' ::..~:: ';'-:-- :,

Pm~lips, ,P. c. ~.,', ~~ Pi~rt.e ,~err(ln;~ iT~sting :t~r ~ Unit Root in Time, ':Serl¢~i:r{~gressi~tt,.~l'~~io#li~:tti!ka::'7? (198g)~3J5~~4tr" ",: " ::' "" ;', ;" "" ",..', '

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46

P.~dY~~tR ..~~., ...an9}~ ,R:Q;;effl;Q~~g~. ,~'The .,Ex:~:~ss ,C~)1~qvement of CommodityPrices~"'EeQnomi¢<~Oumal100 (1990):117l..1189. ' :. "

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_~~~~~'Gh:ri~top~~rA., lames H. S-to¢;~ and ·Ma:ik..:W. Wat~on. 'llnfe:r¢J1~e. in.'~e~ :rtnie~,S~x:ie:s:.Motfels< < ·with So:me 'Utrit<,.;Roots,II :Econo-metrica:'58{f9~O):~~3..144.' . . , , .' .., '"

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Streete~, O'eborah H., and Wnliam G. Tomek. tlVariabili~ in SoybeanFutures Prices: An Integrated Framework,1f JQYrnal of Futures Markets 12(~~~4J~705~1~8. '

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Th.ompson, Sarahelen R., and Stanley M. Dziura, Jr. "Factors Associated\Vi;~~ _:M~rYb~~q.jsjng,: .M,~r.gins _.at lUinQis Grain. :'Elevators, -, :1982~8~·~ ;,AP~tfOtnlMC¢ 'Analysi~;" riort~<:~entral: :JQur:na:I; 0:£ AgtigUturaLEeonQmics9 (1981}:113..121. .

Thurman; Walter 1. "The Po~ltry Matket: ';;Dem2Llld-:Stabillty ~ni(:lndustryStructure,tl American Jouma] of Agricultural E.conomics 69 (1987):30-37.

Thurman, WaIter·N., ~nd Mark E. Fisher.: f1Chickens, Eggs, and Causality,or Which Came First?" American Journal of Agricultural Economics 70(1988):237-238.

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41TQm¢~:,', William G." UBf£ects: of "Put,ute$ :'~(;r ':Op~OlIS '. TT~d-ing' '>,:Qfl J1;aimIncame$/~ ,:::fn ':,Qntinns:$> ::.FUttlres, anll<Ajrid11ttit3:l:,C()tnmniHb' ,Pro.grams.USDA 'ER:S' Staff lleport No. AGES81091l, 19:$8:' pP~:'21-53. " >";:"" ,<:-"

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rpm~k} William d'l and Roger W. Gray. ,"T~mp.oral Relationships 'AmongPrlces' on C~nnnodity Futur.es ~~tkets: T4~ir ,Allocativ~ ,@J1Q" ~tabU~iing

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Tr~~t~d~"·J;{~~s.~lt,and" th~~~~ 'J. ·M~~eiII. uAsy:~~etr:ic' Pdce '~is~,~:, An.~~6~~~:e,~~i¢:\~riaJ~~is, '~f' Aggre'ga~~': :Sb~:"f~ri6Mng$~-- 19~3:~86:/~ ,~~dc:an,~Qur:riat~f,;A~ii:~~~~~a:r~Qri6:~~es:::11 (~~89J~6~~~63'.~" ' "',

t'yr-rell,. Timothy, ':'and 'Ti:tnothy :Mount::' flA Non..lin~~n ,Expenditure $-ystem,Using a Linear Logit Specification,'" Americ~an Jo:urna~ of Agrtctiltural'Eco-no~cs 64 {19&Z):539-546.

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OTIER AGRICULTURAL EOONOMIOS.WOIKING PAPERS

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No. 92-03

No. 92-04

No. 92-05

No. 92-06

No. 92-07

No. 92-08

No. 92-09

No. 92-10

No ... 92-11

No. 92-12

Environment, Income, andDevelopment in Southern Africa

Data Requirements for EnergyForecasting

oil Shoc.ks and the Demand forElectricity

The Effects of Carbon Taxes onEconomic Growth and structure WillD:eveloping Countries Join a GlobalAgreement?

Climate Change t SustainableEconomic Systems and Welfare

Welfare Effects of Improving End'U$e Efficiency: Theory andApplication to ResidentialElectricity

The Value of segmenting the MilkMarket int.o bST-Produced and NonbST-Produced Milk

World Oil: Hotelling Depletion t orAccelerating Use?

Incorporating Oemographic Variablesinto Oeman~ Systems for Food:Theory and Practice

u.s. Dairy Policy AlternativesUnder Bovine somatotropin

Duane Chapman

Timothy D. Mount

Edward C.Kokkelenberg

Timothy D.· Mount

steven C. Kyle

Timothy D. Mount

Jesus C. DumaganTimothy D. Mount

Loren W. Tauer

Duane Chapman

Deborah c. Pe·tersonTimothy D. Mount

Fude WangRichard N. BoisvertHarry M. Kaiser

Documents

I JVorkin Papers in - AgEcon Searchageconsearch.umn.edu/bitstream/6847/2/wp930001.pdf · It is t~~ poHcy of Cornell U;)!ver$ify ocHvely to support ~quaHty of e!iu(:ottO?lo! ond employment'opportunity