Chapter 1

Price Transmission and Markov Switching Regime Shifts: An Application to the Greek Lamb Market

Anthony N. Rezitis, Fotini Mentesidi and Konstantinos S. Stavropoulos

Abstract

This paper examines the long-run price relationships and regime shifts that govern the price transmission mechanisms between the farm, domestic wholesale, imported, and retail levels of the Greek lamb market. The examination is carried out using the vector error correction model (VECM), structural moving average model (SMAM), and Markov-switching vector error correction model (MS-VECM) on monthly price data for the period 1993-2005. The results indicate the existence of three long-run price relationships between the producer, domestic wholesale, imported, and consumer prices. Furthermore, the results suggest that the retail price is the driving force of the price marketing chain and that a sudden shock in the retail price causes long-run imbalances in all other prices, while an unexpected shock in one of the other prices (i.e. producer, domestic, and imported) causes only short-term imbalances. Finally, the results of the MS-VECM show price instability during the years following the Common Agricultural Policy (CAP) reforms which last until prices readjust to the new policy regime.

Total Pages: 1-22 (22)

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