Cointegrated Vector Autoregression Methods: An Application to Non-Normally Behaving Data on Selected U.S. Sugar-Related Markets

The methods of the cointegrated vector autoregression/error correction (VAR/VEC) model are applied to monthly U.S. markets for sugar and for sugar-using markets for confectionary, soft drink, and bakery products. Primarily a methods paper, Johansen and Juselius' methods are applied, with a special focus on addressing well-known issues that preclude statistically normal behavior, and that confront the modelled sugar-based data. In so doing, we illustrate the effectiveness and the benefits of modelling this sugar-related set of markets as a cointegrated system. Perhaps for the first time, cointegrated VEC model results are used to estimate crucial policy-relevant market parameters that drive the markets, as well as to illuminate the dynamic nature of the relationships linking these sugar-based markets.cointegration, sugar-based U.S. markets, vector autoregression, vector error correction models, Industrial Organization, Research Methods/ Statistical Methods,

Exploiting the Cointegration Properties of China’s Monthly Cotton Import Market and World Apparel Market Conditions: A Preliminary Analysis

Crop Production/Industries, International Relations/Trade,

THE CORN-EGG PRICE TRANSMISSION MECHANISM

A vector autoregression (VAR) model of corn, farm egg, and retail egg prices is estimated and shocked with a corn price increase. Impulse responses in egg prices, t-statistics for the impulse responses, and decompositions of forecast error variance are presented. Analyses of results provide insights on the corn/egg price transmission mechanism and on how corn price shocks pulsate through the egg-related economy.Demand and Price Analysis,

A TIME-SERIES ANALYSIS OF THE U.S. DURUM WHEAT AND PASTA MARKETS

A quarterly, partial-equilibrium vector-autoregression model of the U.S. durum wheat and pasta markets was estimated and simulated under three trade-barrier changes that are of potential relevance for the current round of WTO agricultural negotiations: a rise in the U.S. market-clearing durum wheat quantity from increased imports; a policy- or tariff- reduction-induced decline in U.S. durum wheat price; and a tariff-induced rise in U.S. pasta product prices. In response to each shock, an array of quarterly dynamic response characteristics are examined: response reaction times, direction and pattern of quarterly responses, response durations, response multipliers, and strength of durum/pasta market interrelationships.Industrial Organization,

Dynamic Economic Relationships Among U.S. Soy Product Markets: Using a Cointegrated Vector Autoregression Approach with Directed Acyclic Graphs

This paper applies a combined methodology of a recently developed directed acyclic graph (DAG) analysis with Johansen and Juselius' methods of the cointegrated vector autoregression (VAR) model to a monthly U.S. system of markets for soybeans, soy meal, and soy oil. Primarily a methods paper, Johansen and Juselius' procedures are applied, with a special focus on statistically addressing information inherent in well-known sources of non-normal data behavior to illustrate the effectiveness of modeling the system as a cointegrated multi-market system. Perhaps for the first time, methods of the cointegrated VAR model are combined with DAG analysis to account for contemporaneously correlated residuals, and are applied to this U.S. soy-based system. Analysis of the error correction or cointegration space illuminates the empirical nature of policy-relevant market elasticities, price transmission parameters, and effects of important policy and institutional changes/events on U.S. soy-related markets at long-run horizons beyond a single crop cycle. A statistically strong U.S. demand for soybeans emerged as the primary cointegrating relation in the error-correction space. Analysis of the DAG-adjusted cointegrated VAR model's forecast error variance decomposition illuminates how the soy-related variables and the three U.S. soy product markets dynamically interact at alternative time horizons extending up to two-years.directed acyclic graphs, cointegration, vector error correction and vector autoregression models, monthly U.S. soy-based markets., Industrial Organization, Research Methods/ Statistical Methods,

Dynamic Relationships Among Selected U.S. Commodity-Based, Value Added Markets: Applying Directed Acyclic Graphs to a Time Series Model

This paper demonstrates the application of a recently developed methodology, the combination of directed acyclic graphs (DAGs) with Bernanke structural vector autoregression (VAR) models, to model a system of U.S. commodity-related and value-added markets. As an example, the paper applies this methodology to a quarterly system of U.S. markets: the wheat market and a set of downstream milling and bakery markets that use wheat as an input. Analyses of the model's impulse response simulations and forecast error variance decompositions provide updated estimates of market elasticity parameters that drive these markets, and updated policy-relevant information on how these quarterly markets run and dynamically interact. Results suggest that movements in commodity-based markets strongly influence each other, although most of these effects occur in the long run beyond a single crop cycle. The paper illuminates how important U.S. food prices respond to wheat farm market shocks in price and quantity.Bernanke structural VARs, directed acyclic graphs, quarterly wheat-related markets, Industrial Organization, Marketing, Research Methods/ Statistical Methods,

An Analysis of the Impact of European Union and United States Dairy Policies on EU-U.S. Trade in Milk Protein Concentrate

During 1996-2000, U.S. imports of milk protein concentrate (MPC) increased rapidly. At the same time, Commodity Credit Corporation (CCC) stocks of non-fat dry milk (NFDM) went from nothing to more than 500 million pounds. Consequently, U.S. milk producers attributed low milk prices and dairy farmer income during this period to the increased imports of MPC. U.S. milk producers were especially concerned with MPC imports for two reasons. First, MPC between 40 and 90 percent protein had been classified in subheading 0404.90.10 of the Harmonized Tariff Schedule of the United States (HTS). Thus, MPC was not subject to the tariff-rate quotas applied to many other dairy products. Second, MPC produced in the European Union (EU) and exported to the United States was eligible for production and export subsidies. Along with the high U.S. internal milk protein prices maintained by the Dairy Price Support Program, and volatile world prices of NFDM, these policies created economic rents for trade in MPC between the European Union and the United States. To test the relationship between these policies and U.S. imports of MPC, these economic rents, which were not directly observable, were estimated by combing a set of identifiable variables: (1) the CCC purchase price, (2) the EU export refund, (3) EU casein production aid, and (4) the world price of NFDM as expressed by the Western Europe export price. A vector autoregression model was then estimated using monthly U.S. imports of MPC and the estimate of economic rents. This estimation showed that nearly 40 percent of the variability in U.S. MPC imports was attributable to the estimate of economic rents. These results demonstrate that U.S. and EU policies can not be analyzed in isolation when evaluating the impact of dairy policies on U.S. MPC imports.Agricultural and Food Policy, International Relations/Trade,

Modeling U.S. Soy-Based Markets with Directed Acyclic Graphs and Bernanke Structural VAR Methods: The Impacts of High Soy Meal and Soybean Prices

Advanced methods that combine directed acyclic graphs with Bernanke structural vector autoregression models are applied to a monthly system of three U.S. soy-based markets: for soybeans upstream and for the two soybean co-products soy meal and soy oil further downstream. Analyses of the impulse-response function and forecast error variance decompositions provide updated estimates of market-elasticity parameters that drive these markets and updated policy-relevant information on how these monthly markets run and dynamically interact. Results characterize impacts on the three U.S. soy-based markets of increases in U.S. prices of soy meal and soybeans.Industrial Organization,

An Armington Model of U.S. Cotton Exports

A muiltiregional Armington model of U S cotton exports is estimated inappropriately with ordinary least squares (OLS) and appropnately wlth seemingly unrelated regression (SUR) Trade elasticity estimates and out-of-sample forecast performance demonstrate the importance of using the correct econometric technique The choice of estimator clearly Influences the model's forecast accuracy out of sample, levels of trade parameter estimates, and degrees of coefficient estimate efficiency Four shortcoimngs of the agricultural trade literature are addressed (1) frequent neglect of trade theory, (2) excessively wide ranges of trade parameter estimates, (3) frequent misuse of OLS, and (4) failure to validate models out of sampl

ECONOMIC EFFECTS OF A COUNTERVAILING DUTY ORDER ON THE U.S. LAMB MEAT INDUSTRY

This paper provides the model, analysis, and results of the investigative research by the U.S. International Trade Commission (USITC) staff on the U.S. lamb market impacts from the countervailing duty (CVD) order imposed on certain U.S. imports of New Zealand lamb meat during 1985-90. Presented here are the monthly three-stage least squares model of the U.S. lamb meat industry at the wholesale or meat-packing level, along with the econometric results and analyses obtained from the USITC investigation. Analysis of model results quantifies average estimated CVD-attributed effects on U.S. lamb price, demand and supply of domestically produced lamb, and U.S. lamb import levels. A number of economic parameter estimates and inference results concerning U.S. wholesale lamb market relationships are reported and are of interest, given the scarce published research on the U.S. lamb industry