The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria
Projektberichte (abgeschlossen), Juli 2010
Auftraggeber: Bundesministerium für Land- und Forstwirtschaft, Umwelt und Wasserwirtschaft
Studie von: Österreichisches Institut für Wirtschaftsforschung
We assess empirically the price transmission mechanism between producer and consumer prices of milk products in Austria using
monthly data for the period 1996-2008. We consider explicitly the existence of asymmetries in the adjustment to the long-run
equilibrium using two different types of threshold VEC models. Our results indicate that asymmetries play an important role
in the pass-through of prices for milk products in Austria. We provide statistical evidence concerning the fact that the adjustment
only tends to take place when deviations from the equilibrium are large enough. Milk, butter and dairy products tend to remain
in positive margins (measured as deviations from the long-run equilibrium) for the retailer, although this margin is negative
for cheese. We also show that the explicit modelling of non-linearities improves out-of-sample forecasting, especially for
consumer prices and in the long run.
Forschungsbereich:Makroökonomie und öffentliche Finanzen – Klima-, Umwelt- und Ressourcenökonomie
Auftraggeber: Bundesministerium für Land- und Forstwirtschaft, Umwelt und Wasserwirtschaft
We assess empirically the vertical price transmission mechanism between producer and consumer prices of milk products in Austria
using monthly data for the period from January 1996 to February 2010. We consider explicitly the existence of asymmetries
in the adjustment to the long-run equilibrium using two different types of threshold vector error correction (VEC) models,
where an inaction band in the adjustment to the long-run relationship is defined and alternatively where price dynamics differ
between periods of increasing and decreasing trends in causal prices. Our results indicate that asymmetries play an important
role in the pass-through of prices of milk products in Austria. We provide statistical evidence concerning the fact that the
adjustment only tends to take place when deviations from the equilibrium are large enough. Milk, dairy and cheese products
and butter tend to remain in positive margins (measured as deviations from the long-run equilibrium) for the retailers' side.
The explicit modelling of non-linearities does not improve out-of-sample forecasting performance.