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Vertical Price Transmission between Wheat and Flour in Ukraine: A Markov-Switching Vector Error Correction Approach

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  • Brümmer, Bernhard
  • von Cramon-Taubadel, Stephan
  • Zorya, Sergiy

Abstract

The analysis of price transmission in transition countries is complicated by their often unstable policy environments. We utilise a Markov-switching vector error correction model (MSVECM) to allow for multiple regime shifts in the price relationship between wheat and wheat flour in Ukraine from June 2000 to November 2004. The analysis reveals four regimes. The observed temporal pattern of these regimes corresponds well to political and economic events in Ukraine. In particular, we find a strong link between a 'high uncertainty' regime and discretionary policy interventions in 2003, confirming that ad hoc policy responses to fluctuations in Ukrainian grain harvests have tended to increase rather than reduce instability. The Markov-switching VECM is shown to be a useful addition to the set of tools that can be used to analyse price transmission.

Suggested Citation

  • Brümmer, Bernhard & von Cramon-Taubadel, Stephan & Zorya, Sergiy, 2006. "Vertical Price Transmission between Wheat and Flour in Ukraine: A Markov-Switching Vector Error Correction Approach," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25575, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae06:25575
    DOI: 10.22004/ag.econ.25575
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    2. Atanu Ghoshray, 2008. "Asymmetric price adjustment of Ukrainian feed wheat export prices in relation to U.S. maize exports: A Note," Economics Bulletin, AccessEcon, vol. 17(2), pages 1-8.
    3. Zoltan Bakucs & Jan Falkowski & Imre Ferto, 2012. "Does Farm and Processing Industry Structure Matter for Price Transmission? Some Evidence From Transition Countries: A Comparison of Dairy Sectors in Hungary and Poland," CERS-IE WORKING PAPERS 1212, Institute of Economics, Centre for Economic and Regional Studies.

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