~

\I

JVorkin Papers in

AGRIC[TLTVRAL ECONOlllICS
January 1993

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93-1

EMPIRJCAL ANALYSIS OF AG:RICULTURAL COMMODITY PRICES:

iI

A VIEWPOINT

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_:::;.,.~),..,~";:>&1.,.SC ~ ~$

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by
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William G. Tomek and Robert J. Myers

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j?epartment of Agriculturel Economics)

New York State College of Agriculture and Ufe Scienc~s
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A. Statutory CoHege of the State University

~orneU University} lthaco Ne'vv York, 14853-7801
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- - - - _....... _.. , - - - - - _ .__ ..__ . __._--------_.._._---~

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

of e!iu(:ottO?lo! ond employment' opportunity. No perSDn shall be
denied odmission to any ~duCQfio!lol program or activify or be

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 or
handkcp. The University is committed to th~ I'rHJintenom:e of
Offin'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 agricultural
markets have been proposed and estimated. 'The literature contatns
valuable contributions, but the cumulative effect is somewhat disappointing.
This paper appraises the status of the price analysis Iiteratur~ and makes
suggestions for impr!Jving the ,quality o,(empiriqL1 re,su!ts. Both structural
and t:~e~eriesfitodeIsare ~p:praised.

Acknowledgements
Tomek is Professor, Department of Agricultural Economics,
Cornell University and Myers is Associate Professor, Department of
Agricultural Econottlics, Michigan State University. David Bessler, Steven
Hanson, 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 of
Agricultural Economics, January 1993.

Contents

.'

Introduetion

Structural Models

Modeling the Price Determination Process

S~p~~~~

Demand Analysis

10

,Cha{>act~ristics-

14

Models

Mar~et~~g Margins

15

Storage and Price 'Behavior

18

Time-Series Models

20

Time-Series Properties of Commodity Prices

Stochastic Trends
Comovements in Commodity

20
20

~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

aiS~ovefjf~:j1 :,(R:eckm(#1, p. 883

or models - for

sc:i(ilt~~fi6'"

Introduction
The

pione~rs. of

agricultural. pr:ice

analysi~

hoped to estimate

eco~ometric ':ttlanonships "wfii~lt could be' used' for foreeas~ing' ,and policy
henc~; :fof. de'cision-rti~ng: (~~g~; :W~ugh' 1964, pp~ 1.;10). It h~"

$alysis,

beco~e cleai(~q:~eV~f(t~aJ ~h~:::QP~$i~1tI of ,: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$ults can ~l1:oh:bfcP:~ltm~d(T~$'ek, 199:~).

. ,
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>
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,:'Cd~~4u:end~~>~e', -b.eli~v:e ;:tb~t,,tbe qU3:Ii"ty' '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 covers many, but not all of -the' approaches:" to
commodity price analysis.
~

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, , ' .,

:.~:;,.:-; >~.~

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of

, The'j)~pet :~SQ>j?t9Vides:',a ViewpQ~~f :on ,~how . t:Q:: begit? .t~e ,~aslc 'of
: 'One, 'papt 'C~{)t'Tpt:QWde a
blueprint, -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.:#d
Sy1ith~ses~," 'Om :gneral .' poiiIt :,is that "::=high qualitY: einpitital -research
.

tlnproVilJ~;:tne-:j};~~ity of ;emp:ifi~lresuHs.

req'l;lires de.pth .and',. ~ch~l~ts1iit'-' ~~yond

research is -:e)Ztremely ~tfficult-, t() :do.; ,,-' .

.c~rreTlt, 'lev~ls

and thaf' $uch

Structural Models
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:This section 'of the paper revj~ws ttaditiQ~aI st~ctur~ :mQde!$ ::~fsU~'nly"
. '~mrillaSfiing'>
' .,:1"".,
Y r , :' ,'and ':, dema:ild
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....

agn.'cu
. "'lfuraI. ';"
p,roducl';::"
'maik~ts
.'
,
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spe:ej:fi-catio~~

:;!:lnef.'suweys:::6f iIt{)d~s,:6f 'product ~fiatacteristic~,

ma:tgins; 'mlO" stprage ate also' ~ntlpdetl. "Most,'of

stru~tUtar,modelS:':bf,time+seties>bbs:eIVati(}rtS

~atketiJ1g
illis"gectib:~ 'Q:~a}s With

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 be
competitive and in equilibrium. Moreover,. given the biological lags

2
between:: ,qe~siQns ,:tn

prQ~uce ~d

these markets are often recursive

.=the.,' ,r:e~~tio~, of, QU1put, models of

(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~ ,ot

p~~~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,
~e

pf- causality it,t Yt, tQ~9~g:h

ass~ed

station-ary" and

,siilC~e:;

~'~~,~."

J7h: .varia1l.l~~ .In;:tb, ~ ve,~9!

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~Iltite4~ .
Ql$, is
a:>~:~~~st~Jj;t ;:~rid . ~PPP\dt;ically' ;efficieIit "esliitrtatpr:, :far :'t~~f:'p~t"~~~ners: :0

and:

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~ -' ','rational
e:~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:: "
aq~~tion~, ~nve~t()ty beha:YioJ" a4ju$tn:lcnt, QQsts:, .~ab1t ~pnn~~Q~,: ,:8iud
p~t~~p~:::',pt~~r , f:~tQ~:s -, influe#ce ",th,e ,d~,~~ics" ,:p;~:-:j)Ii:ce~,',~d:: ,q~~~~~i~s.
U#fQrt@~tely", ~~tQetl ~prr~t ~ay: to ,m~del;."t~e: dynamic~, of t~e,eb~,9ge~QU:s
v.aii~bl~s ,tn ,:a" ;stru~t:Ulfll fr~Il;1~WQrk :is :a!mQst ,n~v~r clear,: 41JQ diff~r~nt
'$peifi~~~~~n~ ":are ',-often broadlY",cons-is:t-eri{:; With: ihe~ ,observeidA;)e~~Vi~:::(}f
the ~~:~"les;"
:

In a few instances, agricriit~r31 ma~kbts have been modeled as being

j~ ::~~~~q~~l~b~~~,':(Qa~es,~q>:~9m~ck;,Z~~@eJ;,a~d :White:).. ,, Whi~~ linle
app~#~\:
1?~<;, ga~~e~r, ;ftofli' :::d4s~q~~:lil?rlum, ::$.p~:,lfi$:~iQ~, -J~f agri~~l~ural

to -:

maJ:k~~, (lfetguson)~>;pric~,S: i:~, S9~~, ,~:~~ts ~~j~~~~ce~~-py' :gov:e~e~1

pt9j~: )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;,'

Alternative specifications are~ of course, possible. Endogenous variables 'may have a

simUltaneous r:athet Pan re.eursive relationship; the oontemporanc,911s' covarlanees may not
bezero~ a nonlinear specification may be"preferred; etc. 'Many of these modifications, are
discussed. We omit discussion of nonparametric models.
1

having-; two r~gimes~ one whe~.govemmentprograms.> 'are influential and

on~, when they 'Me::not (e.g:.(LiU:, et ' a l . ) . '

Disequilibrium models ,niay yet prove to be useful in 'other

applications that in~olve "stickylf prices. :A more cotnmolf approach to
m~ldeling agricultural markets is to use distributed lag 5,:peifica~io~ to
refle:ct' costs of adjustment.' In this 'View, changes in: ep;dQgen6us variables
ate""not :instantaneo~s; beea\lse' a: variety of imped~'erits '(c~S'fS) :to change:
exist' (N;erlove).: ,:'nie adjustme~t',pt()CSS' is' treated', as a 'stl'ies:"of 'short-ron

eqttiHbiia,":~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: agril;iItiIral

pt99~~:tS .. a:re;-::a:rguably.~ :p~e,d~:t~tmi:~ed~ ":b1:tF:Pt~~~'~: ,~T:!d ,~fl(j~~:ttons"~f ,th~se
>

qtla~tid~~' to :$;t~tn~te:: e't~d-u~~s:" ;may be sin1:tI.lmrte6usl~- dettiJUh~ti! Fotex~p~~~ -the., ~ppte:, ctop-:-eah:
is - fixe:d~;> b~t sQme fleXibi1:it}' exists -in
al:t(jq~tii1~: :produ~tion "arri6ng, tr:e$h~ Jro~~n, ~:ari;l1ed~' .juice -&'tld: ::~ther,:,us~s;.';:;.If
pdc:~'-:~e nb~~:tv~d: '{OT' the: sale~: to ,a:ltet-nate e:nd;;cuses~ tntn :all:oc~tj6n>,-an(f'

...

yar'

-sim'lllt.aneous: :system (e~g., French' and ':Winett~s ,

application ,to asparagus). In this case, the B matrix (above)' 'is "not
triangutar, and A is- probably not diagonal.

de~and ' ~quations ':fo~m _. Jt

Model $pecifications are taking accou~t of the increasing complexitY

of 'agricultural product markets. An international trade component is
essential for many commodities (e.g., Gallagher, et al. or Spriggs).
D,epelldingA)~ the .:resear:~~:.,prO-b~~;m and commQdi~, the mp(fe'l';also m~y,

neeQ""to '"acc6mmodat~ .,' jbi~tpr6di:lct' telatf()-nsbip~, farm--Wholesa:le"'ret~it

m~rket :leWl .rl~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' model

of the beekeeping iI1dus~ty,': ,for "example, has. 27 current "en.dogtlOUS
var-iabl~sf;.11 lagged> 'endogenous variables, ,17' exogenousvari~bles; and 13
b~havioi-al equations (WiUett and French}.
,,'
>,

.":',

Fri~s :Qf. ~s~4Cl1ltural' PI:9ducts -are,' o~en related, tes~lting

in' multi-

mar~et pa~al equilibrium ,models, 'e.g~, model~ of the feed grain:4i~estOk

Jf
complex~ The nulthnate model -'may"'irtvolve the, entire:;~gricultuia1 se~tor

of a country,

it,rl1ay-:be a computable 'genera] 'equilibrihm model (see'

Hettel:for ,3. contrast of a" tnu1ti-co~O'Qity-, parfit], equ~Hbriurri witq:'a
genemkequiUbti~m'fr~~ew{}rk}.
-'
,,'
:"
' '.
Q:t

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,ntifying
restrictions are rarely tested (Sims 1980), though they have long heen in
doubt (Lin). Likewise, the 'exogeneity of, the, nex-6genotl~t1 variables is
almost 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:' .;~d
co:ns~q~~~tty,
or /~o ,ob$e:hi~tionS
'larg~' inb:l:e~ce,
'the
e~uw~tes; , Thi~, is",p~i~:l~ly, se~o:us:::'iIl light ,()f tb:,::'pr:~~es:ting that

'may' have': a

'one

:Qop;n~ly J')~c,~tS:, ~

'model

~p~cifiatiQn.';

",

on

",,: ,:,: ,:

,:, '

'

loi~!!iEiiii&!i~JJE.
~~jor

Cl:la:lle:nge, 'in JiJ)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~ of
matk~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 a

:ano:

Y~l"gq;Jf ,~~~~:t~~:~fs::h.~~~~:n. J~~:9ry

':~lIlpiri~~J: artalyse~>:~f. suppl~: (fo:r
'sunmtaty '~d cr~ttq~, se~ J:ust,19:9~).- .',
~ >

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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~tn::~sufll'ed "jQ .b~:"a

~t~()n.>Q~:, 'e~e>et~9~, ,q~tp~t "price$ :~d" :e~~ct,e4:yield'~; input, prit$;' ~te

as$rim~~ "~9~":ft~~t:~~gg~tl()us:::~~,:~~~, :ini:tim.::~eqs~qn ~~tll~~, C~u}seque~tly~:
:ptQduct:':pr:ip',ti~k' :~d ~~)d: rjs:l{:,':tnay 'h~' ~t~t1~p;t~< ~~>~h: ':$~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'
.:-

>

proGuces<b'oth young ~(lCull 'animal~,: and Jbint i)rO:du:e~~~_.'sncb--aslamb and

w~ak::are:,:s()tnetj'tne~J$p~ttant

be :-~44;~d'

,If '~xpe~t~d::Ptofittises(youD$,:~~Js,~n:

.to', the _b~~dm~' lj~rd:, rt\:th~r --than: sold fO:f' ~laughtet(';,and

conse:qii6ntly" the 'shart-ron :stlppl)i"><response~ as :measureo' byquanti:ty

slaUghtered, can be:' 'negative. -;, Since, 110wever. :,(~:theradjust$e~ts' :sueh:' as

feeding'Jtnimals: :'10 :h~~vler weights ',may' 'be 'feasibl~;jhe "~t \t-esponse ,-may

and

>

still' be 'pOsitive --(Jams;:,Chavas:-,a:nd 'Ia~mm'e~ Wippl~ - ,:MenkhitusJ. Th~',

flexibilitY: ,::to -, resp6n~" ';:to,: a- 'price': :::chan~'; vanes' Willi' 'the stage, :of the
pfodu0~~on cycle, (Cha\l~ :and J:6liriSoJ1)~:' : :::
,,' ,.' ' .' ., "':'" ,: -, '.,

>

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=,' /

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~-

'The,'o\ltpul re$p~e",t(j;'ptie~<~llefa: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\1ivStQ~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 of
p-rice:'change,.
',-'
"
;-' "

.': ':'Perefim~l 'CFops,Pt~sent',:sitriilar ;:'m:odeling' :chal1enges. In, 'any ':given

ye:ar~'.'-'production --is 'limited by bea~~~g"::'a:cteage;produ:eers' may' l~ave
prod'Qiction unharvested :and' tun trees 'ln reSponse 'to low prices, 'but little

::=;:'

can' b ,4Qlle', tQ . increase ,output.. ll)de~d/, ~:~,: 'appr~pfiate masut:~ ,:o.{

,exp~Cld, d:i~oxlnted '~pt~fit -:a: :crl:iie~! j$~~e ,hecause>Ye~ts. P~& ',b~fore :,rteYv

.t$

,. :$tok be~rs ' frui:t. ,.' Althougb : agrlc~dtural ' e:conomists have, been
ingenious' :in-::extractlng, i;nformatiofl from Ufrtiteit d:ata sets, -a,'full analysis of
tree.:~top,supply'"reqiii:res-data on platJ.tings~ remo~als, ag~cotnposition of
otehatd~/and}'ielus 'hy~':~ge:; (Ftench, King. a~d -Mipatni);
,
tt~e

,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'"

Howevr, ,even supply ,analys~s of a,Mua] 'crops is' nor >e~y.

major" cfOP:s, SU(ift :as: ,wh~at, ,orn~ 's~ybe~ns~,: ri;e~;'- an~ CQtt~4"

by:::g6vet~~nkpri)w~mS~'

Hence;

"equations.
Mai1:y of the

':J.fe"'irit1\l~:nf;~d.

trinSi~erable, eftbIt"has:bee~ ;d~v9t-ed'to

'

,supply::,'t:esponse'; in.; .t~:e :::presene':, 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)
estifua~ing<

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 model

parameters':m;e constant

over alternative program regimes.

',' .;' . :.' /Q,l~:;:,~eon4 .. ~PPfP~~b -a!tempts JQ_::lnod~l' tb~ ,A'~e,'.:~~!ket ':~dfann
p;~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;1fr,:'f~ Jij~ twQ l~~ti:(jds::{eig., ,~~ ,; aQQ'::!ie1ml?e:tger). ';-;:This:: al~~tnativ:e
h:~:<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 :this
a~y~n:~~g,:::~. ob:UJ;~n~~::,~1; .'tb~ c9st:of ,;est~a~W!l::mQre.,::param~t,e:rs!,, ..4e, :and
ij~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: delint ,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~~tJ:~:~~~~:t:tt~f:J~at%~~~~,::rJ:l:~
py:
by
in. Table,
197:~,:;
,l,Iou:~~,:~t ~~.:~~d .
1. Th~~; :~~ysts .. believe,

J.~e AAQ"Fle~ni~er:ger are,>.~~m~req:.

.that exp~cted:- ..5Qyb~a,n ;~nd, ,ccirn: prices :are,

bnPQrtant .arid. -that soybea;n acreage has dynaJnic prQperties.. .Bl;l:t tbey:-do
not 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'odels

oonsid~~ ::pIic'~, ,or- yi~ld' 'f:isks:.,.

~ffernt:$pecific.ationsf ,:howeY~T:, ,expl~ip.

,The

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

."" .'11l~

pro~em.

<

.. .

;ilf: :1l1~~~:t:iJ}gexp~~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, 'by
Antonovitz and Gre'4l;l:. ','. They ~~idet n~ie :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:1d

a~gue: .,tb~t J~I:tures,:prces '~: ~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.ntoRQvitz

aPe: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~,:tS: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,
C0rrelat~~,

(Tomek ~d: 'Gr~y),;

and' >distan~
,

fu~tttes

.'

>,

prices
:

ar~,

highly
,

,.

,Supp~y ,;l~a1ysts~~ve,.in~e~i~g~y considered me~ures ~f risk in

,As noted., alt~tiv~ ,measuies' of

therr models (Just 1,914; TrailI).

expected price exist, implying "at least an equal number of alternative

measures of risk. Actually, the number of measures of risk is larger, as the
differences between expected and realized outcomes can be treated in

-Expl~~atQ&: variables -_-

Equation

'.98

(1)~

.99-'-

-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:' time
pr~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, of
s()ybean",~q-' c9rn._:pr;ic~$ r_e~ived: by- f~rineIs; l?$S -is effectiyesLtPPoft, price to:t>soybeans; PFC is
efective:,:~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 on

effec~\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~dPSX

are farmPf1.ceS Qf,c~rn.~)l(;l:-$~y~eans, respectiyely,-,deflat-ed_ by .an indeg>of i~put-,prices; FPP ls

gain 'p1;'Qgr~~ -payments _available :to f~mers; ADV is maximum- 'acr:eage diversion
or set aside; p is autocorrelation roeffici-ent (Illinois value shown)~
"
expectel~ fe~d

t-rados <'~n

pareX1th~se"S.

-,

8
Qi;fferellt, :ways~, The ::'spe:cific' 'risk
a~st)lute, devi~tions,

measure' ,'may

be.:; based, on, -squared, or

and symmetric (both positive and negativ~) or only

unfavorable differences (negative differencs for product prices) may be
used (Tronstad and

Mc~eill):'

Notwithstanding. :the" many diff~rent e~pirical implementa#ons of

i

price riSk ,measures, reseircl1 results sUggest that rl~t<' has a negadv~ effect
on 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~early imp(,~~~g -the ,fit 6f the moael.' "
',

ini~~r::i~~:~.~:~~~~;il~v~t~~~~p~c;r~~::~~itf~~
an ad
'The
',common

~v~~~~" ~b~e, ~re, -m~del~d 1:fl

1t()C.,f({S~I~n:
;5:l?~~lg~t~~~, ,is: 'toJtItl~4r ,>~ lil1~~r 'tr~~<:l ,i~. th~' ~q:~#

a:nd

,_p1o~t"
t~~s ,tq::;~su1!le

, ,tb~~: tJl:e:::p~~~t~~(:pfthe:)rtQdcl :,~:/eQ~:~~nt' ,o~t, ,t~:~: :s~mpl :pe~o~,_:net

IIi' cbptra~t~ .~':fiiit(F;in ,t:fie:, ,nex;tse:~~tlrl;j, ,:analysts

: ; ;.Qf the :tr~rid vati~1,)ie~:

det~tmine.

whetbr ~b~g.es in' censumer

preferences have resulted in structural change in the demand for farm
products. The' prohl~m on the supply side is that ~~chnologica1 ~h1:\nge is
so 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 'fully
satisfactory way (for a nonparametric -approach, however ~ see Chavas and

have spe;nt 'much, effort trying to

C:Q~).
,

".;
A1i9~.her; "~e ,a~, conU:ibution: r:~later to:' Qbtalri~~g ,:~upply, :~~tiri1ates
on .a 'll:10re::;:disaggrc;:ga,ted ba;Sis. ,Supply resPQllse Ca;fi-"vaty by regiort'since
climate;~ :land. q~ality ,arnl -otber fact~rs ,may vary ~geographically,' by variety
hig~ly correlated :with r~giOh {say, 'spri~g
V'~ts~s wil1ter-wh~at),,~y si~e~nd typ~ of farm (say, full and ,p~tt":ti~e),'~nd

'ofJhe" commodity, w:Qich may,:be

"pei:tbaps', by age or' othe:r attributes of ,the farm I1l:anager. 'W:hen data ,are

availab: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~

',~u~,:xes~dts

'$e .'~pace;::availab171';~:~t .3.' few ,are ,iHustrat:~a in T~~i~,_ 2.

remin4 ;US'" of the dtfficulties of talJdng about Uthe'" ptice

elasticity: '6f supplY::nt of making comparisons of elasticities, without care:ful

q:ualification~

. -.

'

.,

,',

,,

Although models which cons:ider the dynamics of supply ':and --the

effects of risk apPear to find ,more price elastic supply than other
sp~cf.fications" it is' difficUlt to generalize It:0111' the ,diversity of etI;l:pirical
results. Rather, given the div~'fsity, it app,e:etrs that no 'one modeling
approach is suitable for all commodities or research problems, and
moreover we seem to know little more about the lftrue structure
generating the data for any particular farm commodity than when e-mpirical
supply analyses first started. The reason is that most price analysts impose
a structure on the data and, in general, do not test whether the assumed
ft

" Com:mp~ity

Elasticity

,~il~ P;~'~~1;let~9n, U:S

short run
l~ng

ron

Mil\{, N:S,:$nort run

,smalt,.ums ,:"

,,.. ' :"

:'::';!iiedip~.'~s

....

,:,l~~~~ ':f~in$

Citation

0.11
5.03 to 6.69
Adelaja
0'052::,

,~ij~~7

: ,:,:

,', G.23

Shee:p, bi~lt:~g, tlock

w~r;~i~, l~ffl}j ':pb~ce

:~h()rt

fun

'lOf\g

run

0.87
11.53

w.r.t.. woo'l,,:ptic~

,, ;sho-rl:fUft
, , ,,: ".' ':: .iQ~g .,:;roA
~eat' Acre~ge,

PQrri '~~lt states

0.61 to 0.95

, st~t~s:,':.

(1.2210 fK46a
0.71 :to ({99a

:G~~~r)viqter wh~at

DakQtas

,0.32
~h$6."

Excludes Montana

MorZlIck-WeaverThl '1 1

Hel~berger,

10
structure is correct (except for some rather superfici~ appe:~s,to t-values;
signS, :et~.). ,,111us{ w~ ,ate: 'doubtful ,ahout ,the bettnts>-of <imposing an even
more 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 previous
results; ,,:We :,have <nlore to say about improving models in 'the~l~t section of
the 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~e
testriu9*S'ff:Qm, ,~~mand ,ttf~o'rY,on th, 'systJl1!: ,ltQtu, ea:t~gQdes, in.mtiI,

'have 'tn@y: ::sp'e'(~lfiC:a1ierI).~tives . , No s:irigle ,'approach tQ: odel, 'specifiba~on

has ::~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~, have

been stimul:ited by a variety of rese:aich problems:

Th,ere is perhaps a predisposition among econ,omi~ts, however, to

estimate f'theory con5ist~nt't demand 'systems" Initially; :,empif:ical W1~lyses

and .judgment were ,co-mhined. to ,construct ,matrices --C?f<d~an4 -:elasticities

for indiVidual foods vlhich are consistent with theory :,(Btando~)., : This
approach "bas' been c.ontinue:d ,and refined (e~g., Huang)., :A':- potential

benefif: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

ntltriber of 'assumptions, approximations,

tn~:' ,estifnates" r~quire a

and jlJdgments, which are

collectively of unknown quality.

A se~ond: '~pp~o~ach us,e:s a spe~ific fll~ct!Qnal form for the demand
equatio~, aggregates over individual commodities to form a relatively
SIl1all: 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'a

bah;mce b~tweeri mathematical and statistical convenience (simplicity) and
tealism. 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 a
line~ system can place unrea:listic" restrictions on etasti~i~ estimat~s
(King). Fiutner; systems specifications often ignore dynamiCs, possible
simultaneity, and variables which may influence the level of d~mand. It iS
therefore, perhaps not surprising that statistical tests often reject the
t

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 in

C~PP~J~1l" S~~~~~r"T~pl~. ~)~
"
,~

~ A", >~

>. ~ >

, SiJlee its .In:trodU;C11Qn,. the: AlmostIdeal Demand 'S~t~~ (AIDS) ,has:

b~.c6ine :e~pcjally popul~r: ':in -~griculJ~ral eCQnQmics. ';:-: It 1;lses a

s~~lQg~rithrnic .fnqn \Ybich has ,~ome ,th~p:r~tic~l and .prCitetical ~qYantage-s
(Defit911' ,~d. ~~~Jl1;)~ller; B,~al1forti ~d Gfe~n). " Ute,iib equation'.in Jhe.

sYst~m ,,~ay'

be wnt,en

>.'

'

~ =: a.+ ' " -v:4n p:

'. ..
J
If- "ll
J

1.

... .1"J
-R;' lnf"l/P)
v

where
w1
".:n. t:t.."y'
,. I:'l "\ilt" ,

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

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

P = pr-ice

In?

:~Q

in~ex

defmed by

E'i' a. In J!t. ;.; 1/2-- Li tj

"'~j In Pi In Pj
.

--"

n
dild

Y = LFjqi'
i;'1

~(~

To make th~ );node;l lin~;af jn, the pafamte(~ it is COB1:IIlon to

repla~e' p ~tb ~*, a ,]qlPWll _price' index .assumed ,:to be 'high-Iy corr:lated,
witlt P,{Q~3;~~n :a~d ~vluP:bauer) p~,,316). Po:te:ntlt;il dis:ad~antages of 'AlDS
in:~~u~,efu~: larg~r" t:tum~'t _pfpar.anleter$, to ,:be .e$timated, :than with ,a :lifle~r
expenditure' system 'and coHinearity' in the regre-~sQis. In- additi&n, the
r~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; assumptions
about" the separability. Qf u~illty JUl4 JllJ:dg~ti~g. st~g~s:::Qfj;1()ns~I11ie:t:$~ :and: .the
appropriate gfoupings may be -unclear. 'One .artalysis suggtsts, {t)r ,example,
th,~~. cQ1l$:utn~r$

40 !lot .;~I~Q~~te: ,eP~U:~~lllr:es fitst ~o .agg;f~g~otes lik~ ,chi<;k~n

~~~Hj 'tb. aggfg~te~;' "'R~;th~~, .
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...and
Unnevehr 1988).
a#~'.'b~f and.,

theu_ to> p#)du~~s

ailocanons -

12
economists have co~idered inverse demand
may. be more consistent with ,the price, de:lefmination
process in agricUlture (Ea:1es and Unnevehr 1991), allow~d for dy.namic
be:ba'Vi:or in, the:'::1t1oael bY',using first diffeteilces" or by ,nsltlg 'the lagged
"Agricultural

specifications~ ,which

dependent vari~ble (Eales and Onnevehr 1988; Moschini and Meilke); "and
us~d; 'AIDS' 10 ',consider, specific' ,issues:':such as ,structural ,change' in: meat
deinand ' (M.oschini and' Meilke). At present," formal ',syst~Q1S ' :tY}jically give
e~asticlty estimates for aggregate commodities, which ,have few practical
appUcatio~ (on computing elasticities, see Green apd Alston)_ To the
extent :that a$ystemsappioach can be used with relatively disaggregated
commodities (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 with
w~ces: ~l:ilitte:d, bui a v~i~ty ,<if :ful"iell(;}n~J fot~s ,h~ve beenco:nsi(Jer~d ,in
crris$;$e~tion. alla1yais. In the absence-of pdt~ variability,. the gen~ral form
of '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 jth
ho~ebold, Sj == h?11Seho19's si~~ ~r seale,'and ~ == other variables which
define the household's cnaracJflstlCS. 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 -specified
as 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 "lvels
6' jncome. : The -logit or: multi-nomial :lGgit-~ in :dle case,of a system, 'is an
atte: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 ,model
predictions cannot be 'negative.

A Tobit mQdeI also is a plausible speCification. Atwo..;part decision

process is ass\lmed: whether or not to purchase and th.en if a purchase is
madt\, t~e :a;m<tunt purch$:ed. This appro,acb' ,c-an" explain why consumers
make purchfl;$~$':':as:weU,:as the level"of purchases. It is--also possible that
the ' surve;y peno4 ,is ,-shorter '",than' the put~hase Cycle, and herie~ 'n,6n-:
p~chase isnnt equ:ivale~t Jo zero: ~~nsmnpliort:(60uld).
," ' , .,
~

>

:A 'key ~ooIlc:ept :in modeling J}ouse1J~ld

hotis~bolt1~

d~ta

is the life

~c~~,

of tne,

speciflcaHy' the' -J;lumber, s~i; and,' ~ge:: of the' hous-ehold

me,mbers. Generally, models of bousehold 'behavior represent age and

g,ender indne ,of tWo ways.

One approa-ch mvolves the construction of

!'adult equivalent scales" for members of the household and then
aggregating to obtain a "household equivalent scale (for alternative
approaches to computing adult e-quivalent scales, see Tedford, Capps and
II

~~'\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, hut
gr:eatef:-<,si:mplicity~",'of" sc~le':, 'variables ;and', ,tP-e' greater,,' t1eXibi1ity~, ,hut'
inde~~d-:"'c()mple~ty, of:- havi~ ',nu~etou,s '
:'variabl~' -:in the'
ttJudeh :::Ty;rrell.:311d Mount' use a' :Lagr~gian:
polynonnal 'of
age, ':>~~l~gDus' >to,:an Al~on, lag: "specificadotG,.' to ,U:mit:,the'"l'iumber "of

gender/age
lnterpolatio*

parameters:

. '

',: , ":' In.: ~~d~~on,

to> :iJ:lc:o~e:-':and 'Uf.~:: cyte'",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~
>.,

,.

'modeling de:rsi~$:::~#st~,:: : ; ': ' .

o~ ,sped#cat1on ehoic~s,': alt~~~tive:

-Cle~dy "many' c1iffi~tilt

~

",G~y~n ~~e ~~rge"

number

>

>

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 varying
ni~~g~n~l :ptop~nsi:tf~is:, ,~o 'spend ,on" food estim'ated' by
,"$inalySts.

::;,

'::varJ:ous

,;:to',=fhe' ',s~tu:aHon,'-:f6r, ,supply :anaI}tsrs;> ,agreementex1sts: 'on' ::maj~r

contpts: that sholll~,be: -ll)cluded ill' ,consuItlption 'models.. -ineom',and ',life
cycle effects~.:ibUt m1;1ch, disagreement exists oIt'the best waY' to measure the
con~~ts:~, ..' ,

Ana1~goii~

using act hot;':spectltditi6~

~ecortq:aty, tili1e~
:tema,in important.,,: Th~se models mgy be" "single
e: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' the
t1umb~r of articles published on ch{)lesterol and hum'an health. This, Jndex
is ;$~J1; uSed',.111 ,a d~mand" equation fOf(tggS: 10, -estimate '~he "cnolesterol
effe~t~~~.: ,,'
"
",'
,,;:, "
'
s,elies

<'Dri1an~l:~nalys'6'S
,ab~,ervafio~

witii,

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

tbe.'pas~ ::15:':years~,:

appeat

'Co~fficlentsd~eptesel):ting the;dem~tld",sttu~ri.tre f6i':meats'

)lot,Jo :l)e'
st~~le:-gi\len Jhe":mpd,el spei{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 effects
of advertiSing on the demand for, generic commodities. These studies
emphasize "the distributed lag relatic).tlship between cha~ges in advertising
and 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,

the :'(jt"tjrfium' '~dveJti~tpg; level:, :is:'

g~~~ran:Y>,itlCI:e:'\$~S :qem,~d :::an~: .:Jhat

s()me~~e.:~J~tg4}r., tff~n.:thie::'~~&~#:tg-4e~el.'

Suep. .:reSults ::are"'~(jwever~.'subject

to" :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~:ffets.::0f

:effect :of .~dyerti-sit~g: :pork-.::on<' tbe':'d~~and f~r

g~n~r\i~::-~dYe~i,singi:>S:a,y, -the
beef, are rarely exami,~ed..

Characteristics-Models
~.

'.~

>

~.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:odst . -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-l1daster

ar~~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,' 'is

def~~~4

:::t!.Y/the.: c~~6t~~~IS ':Qh:~~~t~ti~dcs~

hnp9~a~t

r6le' in the'

;~n'd: 't~:~se' attt,w~tes:.

pliy'

detetmin~~iQti ,:-Q-f":,.cOmn1Qd:ity, p~~ces ... ,

~rt~~l~:Q-ral.ec(}nQ@stsb:ave ,~on;t~;i,~-ute:d

to tp~Ji~er,~mr~:::o:n:

all:

Thus",

cltarac~e.risti:cs
~~1~ .(~~g., .:'Ladq: -:~d Su:yann:urtt). ~nd: :h~Ye" :~$timatep, :the demand, for
n);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:gaMve

efte~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).
I:~~~l~4tq~~.tion . i~ :~he cQ~t~. and., lwnefit$> Qf:m~asuriJ1g: ,ch~t;aetetistics;

A:

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$.;.::~ritlj~t:t~,~~arth'.
::tFa,: {~~~~,;' f~t, cQ1,1:t~#~ is.'~,.d~ter:rbi~anf o~~lk.:pti:~s};: ~~d .:n~C:kstaeLsh~W&
~~t:qi~~~ll:lg;:J,9~:. q;l:C:\liW::.Pf~~~:,g~~~t:~l~YJQW~t~::,w~l~~~~::' ::;Ana~ys:ts:::$JS(}:'
ha~e e$~m~ted' the impl;.icit :pd~~s' of :charaet~r:istic$ ~~ ':$er:vii~s .etnbhdte~t:.fn

a ,'ommodity (e.g", Carl, Kilfner and Kenny), and in particular, since

fede~~l. g(~rl~~.

~~~med, to ,imp-ravc market ,infotm,ati-oll~:' price- analysts

in the ..relationship .between gr~de' .leye;ls and .prices .(e.g.;
Bmrse-~ ,Or~nt and Rister).
Clearly, the effect;s" 'of commodity

ar:e

,i;Q:t~r~:~t.ed

are

char~e:t~ris~cs' Js "ari important ,'area

of r:esearcl), .but the ,:topic is su;ffieiendy

novel 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'" ~b

price ,~ffeteficts>btweelj' JatIDe:df '~d:

ada~:s:s~d :~t,;-the;' fOIlewing:

coliS~ers.Airiong ';t~e ,;ql.t~silO:I1s."

l~v~:J or
":ftt:W"

'margw: :M4

'\Vhaf ~XP1~ps:':die"

:~t!\i~~~~;~e~i~\tt;~~l~;~~;r~l!~:li

b~t=r~~~~~~li=~~~~::ky~~~~di%h~:=:;~~~;~~i%1~'li=:cl~:<
.'acrnss:::fuarKeflevels>:'
..
,',', -: -:', ' ,::::',.,:.'", , ,. , " :-:-;". '
, , > . ' ,:'

".

>>'

> ,.

>

~:

>~

>

>

. :",':

".

=:ia:L~!~~!'\i~~f~:~tr~~~~:y::!ta~~~1d:!~T!~~Jl~.i~
be
two' 'inputs

~re'<a$suri1ed':to

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.dW .

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~tq'"

Wp:hIgenant ~d :H.aidaeber H}:91);:::
:.:' ,
>,'

:bibIiograp~y' 'se~
' , , '

,:

'

. .,::Qle f~~d' pt~PQtdons ,a:r~rnent ,is,p~tl1ap~,. piaus~ble. .,:f~r food

'4Qt.' 'imrricidiatfy: 'obviou& ''that ';fooa ~~lll;lfaciu.rer~. :~an

Pfo~u~ts~ ''-since:': it is

'-su:1j~~~tU:te 'b~tw~:~~-:th~ :twQ ~PQ,a~ e:*t~g:ot1~s;

sh~~t$;,':t~af'

::use.

:fiXd

'()( lllP~~$

'I~~~~d~ ~~nY-:Qf~li'

p~~;l~$;~~t :~1' th~,:;tJ~P~ :an~:: l)~~~Q' ,9r;r :~:~~~~

'~~:ffici~~ts' ',(fe~~ :::~~$Yffle fiXed~"'pt~pgn~Q~r:)p

ret@ir :comuinp~i6~':;seii~'s,'

tra~~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' :':fiXd

Pt9po~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> 'of

tm~:du':tion:,::the6r.f'

'b ~':t:{ .' sUfuing: thar :ittm;le*e:I': $'.

k>: r'.:::pt detenmnd

thri$j.:~unt~st~~~ed:::t:dtt~d~ohn" 'equ~~6~:;:~~e:U~~~t ': h~:~:f~i '::pri:~$ ~:

<', ':

(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:o
fun~ti~~::fo~'eight f090 gto~ps, ~re also, fitted ~th s~~try'~~:,consta~t
to' "scale . :testtictions~ Us~ng '. annual dat~ '. W<!hl~efta,~t and

returns

~;~:
lJ~Jd~cher: (19&~,.., :p., ~p). cO~91~4e th~t nfQQ~." ma~e:ti~g J)eh~yior. C~~ . pe

charact,~~~~: asepn: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~d
dt?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~:\~; qit
p~~1ing .~velt: t~e. actl\l~.>::~~~,-:;qf :~tuf~~-;:marke:ts. by, "m,9st ',;flour Jp~~~~~s~
>

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

.risk: rii,~asure:- :ls '

'

.: : ;: ." .,:,\,:itt{ ::;~~taYf' m~tHf;'~~:~j}~r q;,~r:t~~l~Yq;~~~'~' :th. .Jkl~~~s' ~ of ,m'ar:gin"

,are:
:stjorter

the

,or

bell~W;i?f'
.:t~PQdan~' '~nd
~;fe;cfs':
market 'l~pe:~f~:C-tiQns may:'be
c~~~~:r wi~b
u;:qits,of:obs~,tyatiQn. ;:Ifie:li ~sum~': t~~t.'in 1he'~boft
: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

rUn'

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~.".
',in:c~ea:$e,Ap :,fet~it, ~:q:pply:,,~sults: :ID, .~n- :Jncf~~:~e::-~~ fam)-

':P1e

~'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~r

prIces. (Other exogenous changes can, Qf cour~~~ b~ tr~c,ed
the system in an analogous way.)

wholes~le
t~toug:h
,

>

tll;:H~'ien's ~ritp-itical"'modetr.e~.~t.rpdce :~ ~:"fi;~c~i9P: Qf' ,AAtrent a~d

la~d ~li~l:es~t~ ',pr~~e~'~ ,unit ,lal}Qf C()~~~.:':f9r .:f~~~~~' 'f09~:"stor~s," ~~::;~~ .

"o~th:ly. '~(a at u~~4,: :antI ,t~~t~s :~~:(f :9Qndij,cted;::,(Q:f

un~lrip~9Ym'enf 'i~~~.'

u4idit~c~l.~n~: i'c~USaljty," frQm :~' 'w~o~e$.~t~jo 'fet~l le;~~~., ~n ~~he, ~ajpdtY

bllt~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::betwe,:~:n w}jQle;sale
arid, 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~. mopeL

4e:, ,~lici~ly 'mo~el$ laQor supply ~hd d~m@d' fOr the :1000 se~Qr as :well

retail

as 'whQl~s~le and
'tood ,price$,~$ shnultarie<iusly det~r~~d., The
impl~riientatiori' of hi~ mode] u'ses qnal1,C'rly" qpseRra,tio,~ ~or ,foo~r ~, tbe
aggregate: In this context, tee concludes that simultaneity is important

17
~d. ~~t. ,~age ~hanges ..are; nQ~, ,duly, iIllPortant direct .4~tenninants of food
prlc~,:,;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:
-stlll-:important ,arid

-are

may 'cQntmue

fQr two or three years beyond th~ initial shock ~when tb'e
C()mp~e.~e: ~cle -,pf: 'infl~tionary .-eff.ects~ wage:, detenn.i:nation",processes and
fe,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 reflecf
dynamic adjustments to food price and wage r.ate c~ange~.

A common ;bypoth~sis' in the price

tranSmission

lit~r~tur~ -is ,~hat

f~,,-.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$- :
,a$:sumed',
rul1S,,,ftron -ttte' farm - the Ijte~a(~re,:J1~s-

tl~:a;tcau:s~i(y,>

~();

wb;qt,~~~~: J({tlj~:::t~~ai1' t~yL,. ,'E~dy iesult~, ~~re,<~~~,:;;:~t~ '*be- maJ9:tity

fi_!rli~~l:e jt~lly,'~symmetr:y;;::W~~ ev~n. found th~t --Iie~ail :p,t*ces'J~r -~
>

'respclJndd mt>re rapi~dly" to:, -deete~e5 th;ln to' incteases' -In, ,

wholesale prices. Recent results have mote consis-tent~y found a'symmetri-c
pri.ce ,r~p$es (e.g., Kinnu.cah, 'and Forker).:.

vtig,t~b]es

:::; :.:,.-Hahq; (p.. ,Zl) argues ,':fol:, :a';'Geueralized 'Switbing: Moder', w~ithjs

'frQugh~y-",:e.quivale-fit ,of a -set of unrestricted,'feduce~

..:fwm eqnations for' a
g~ner,al: set of endogenotls></switchi~g- regressions relating farm, wholesale,
l
and,:T~taH p~ice:s:-< of a.Jin ,.rhis- -study)-meat/ ',.Basically, curten~ changes in

r~,t~11 ,wbQl~~~:~ and

farm pric~~> ar~ relat~d,.t9 lagged PFieev(l;fiabl~s (~t~

responSes to increases: 'th~,:.,.
are used~ where the
monthly CPl, is' distd~ted over, weeks. Hahn's results suggest tbat
~~~fry'is especially import-ant it~, retaJl :priG~ ,adjustments." However,. he
foun4::evidellce ,:of asymmetry :at 'all:market levels.

::~ :-:-.spci~~atibtJ: . ,.t~a:t petmlts 'dif~er~nt-,

:Qec!;~~esJ/ CPl, -and tt~n-Q . .-. ',We'eldy 'observations

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 not
explain :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' tor
ptices-.fO:t'.:fresh..tnats_ :or produce:, tK,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, perhaps
within minutes; ':MoreQv,~:r~' :info;rmation',is transnnlted;-.:f:rQnJ;"'futrires,to cash
tiiittkeis q~ilcly (:~g.,. ~arofseri," Oefl~$~, ,and 'F~itis). '::Th.Q;s, ~i' ;~oMi(:f
appears: to:.:~xis:t.,;between the ,empirical fe,sults:':wW:eh :rel,ite';cash, and.futures
prj~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 the
observatinns on pri<:es used in "price: transmission studies are not ,relevant to
the. 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(jpoly
power, :1:n~~>:d~lay <ptfc:e::atlj:u~men~s,at: tlje:,wp-o:lsale "Of ,',retail :le\iels':,etther
h~cause"'0f>~sts'-:rif :adjust$en:t or. beca~~ :afJak: o:f":oo,mpetf;f#Jn.:,
.'
~

~
,

>

,::In,. sutri, '.,much': intefes-ting"~~d vatuable ,research: haS ':been conducted

margins

.~d th~ .trammissjpu:(}f lnfcitmati6n tn 'markets~ Bpt~

a::,number:, .~f:pl;];~~es ,temain, '~dA~ ,is Utlcle~t wh~tbet existing ':lt1odels and

on, mar:ketipg

data:' ar:e

A>~

>,.'

~>:

c~pable

><

>

of::answedng. these :q~~tj()ns. :':

vv'

~ncepJUa~zation

v',

>

>~

>

~A

,.

.',,;:

~_

of the' supply of::stot::tg~~::al:e tintable' exceptions'.)'

"

"

'

Most early models, involved" tra.ctable ,gpedaJ ~es of, ,intrayear

in~eryeat mv~p;tory l)ehavior. Emph~is was

se-asonality or of two-period,

pl~~ed\Qn: :a~uaH;y:::pto.du~ed ':CrQ:p~:,.,;~#;llet :Wbh::~con~inuo:ijS, :(n{)n?pfisb~nle)

or:. 4~s~o~tin:UQus. (s.'e:mj-perisbahle)-,'inventories~ :.CIearljr, :demand' atS<f.tan

be:.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 ~arkettneaby a,nd "mpre

diSt~t fjI:~~r~s' c.O~ttaets. W~rJdng J~94~}~ :..in' ,his i~&e~#~l ,p:~pe:r~",})iitted
orit (I) t1)at' the difference between 'the price of a (iistartt maturity atld the
Prl~:,:.pf '~h~ .'fiearby ,matlJ.ritY (p~' ,:t!ie ,,~~ ,::priee). ,d~fi~~',.~ ~pr~ce :of :~t-or~~e
'a;ntr:(~) ;th?:t 3;, tl~tj~oM~ip .s:npiiJd ',e~is:~' he:tw~tn' ,~s ,pti~e :-~d, the)~vl'=:(Jf

caHeo:<the, Telati~n:ship '::the, ,supply :of: st~rag~; given:,Jhe,

in~e:l:ltprle$~,:' ,a~{:
tim~: pdQ4,~n~yz~:<i~

-the supply 'm-acti:on w~ ',r~latively st~ble,and,:shiftS::in "

for: ,stpIilge .id~tif:~ed:t);te ,~~pply ftJi~cti(}n. Working's :$imp1c
mQ:del)lasd:rnpl~~t~Qns':both.; for.d:n:trayeat:::and, =:interyear, behavior: :of>,prices.
th.~ .;d~:wa:n(l:

(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, ana
..Iri\ienioties 'tnUSt?be" :riohn~gative: ':'an~' st<~ckS
from: ,the, :future:, though an a~tive 'futures; market'
permits ,,buying .far' future ,,delivery :based on future production. Thus,.if
stocks are'snrall rehttive .to current demand, the cur:rnt eas:h ,:price may be
high "relative' ~o ,the ,pdce for futnre':,deliv-ery; ,the, price of storage is
negative. Positive" -though small, inventodes exist at these negative prices.
,"

GusW~on~s' initial ',ifarts~

C~()~,:: be, ',l)otFowed"

19"

:~f~;r~.~~iri~1~t~;~i1~~::~~!!ft.~~:?i:fl
irnp6tt@t:ncimmeariij: iXlS:ts "in: tbe;lyeh~Viof ,bf:tJj~,:,pij(;~9f: stotag,
inventories, which must be. underst,ood and correCtly'modeled.
>

>

'>

,.,.',

:,

'~~d
'

f()r, under~mPJaas~i!,:g, ~1,le " ~ole , Qf; "qemand ,~ho~ ~n ,p~~e ,beh~vio:r" b~t

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
a~tent~Qn, t(),:t~,
:PQ~nUany impQrtat,if 'tole' ,of inv~ntories (relati~~ tp o~r, vari~~l~s) in

tliir

>

fueyeall

explaining pnc;e ,beh,aYior

0-'

',' A ,di{f~f>~B{' &t~and" of t:he, litera:wr:.e emph~iz,e$' optim~ hedges .for

iP~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~,$edes prQperties
wbj6h:mp'S;(cctromoQity
to share, and the~ by considering
appHCitfi6ttS,~nd ~mVl~<:atiQf$ Qf the ~~>shlts.
'
",,
, ",'" '.

pHce' serieS-se6:m'

ti-~e~:$~rls'Pro:Rerti~~
>~">'A~'<

>~~

of, ~QrrlJnoditY ',Prices

~

A'.

;' ," Loo~ng <~f,-graphs, :or:.,co~oaity ,p~i~e ,to~~ments Qy~r: ,~bi~e~::,()ne ,'~s
struck by
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~~,
i~edl~tely

me

~~,:s;

:as~oe~at~d

"1he~e,,'~ay' pe

--P&ll~ps';::~r~ :(~s~ciate~ ,\\d1h

F4f "cQ~Qditj;es ~Ubject

With

a, m~Jor

<

::~~n ;sto~~s -rehifiv~ ';to

r~gi~, shift' :in

demand'::6;r

the "u~d~t}ytng;:market.
to government' $Upp:ort 'Pt9gtaiJ1~, ptic~s
sQIjl~thtls, ~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~~$~Iily ~ikes ,in (;oJ11,mod~W pr~ces, )~pd' ~Qme ,S:tr-uew:r~l moqels 4~al
eijj~f~itlY\Nith ;tb~ tr,tiri~at~()l1 of .price: "diS'~ibl1tfotl~. Adyailtes in <ti.~e7$~i:is
ni~~~~ds,::." ~t~,: ,hp~.eye~, provi~'ing n~w jtJ$mJ#~ ~to' 't~:e . ,1Je~~~6( ,of
cti~Q.QitY' prices (and ass:oHited' ,vatiil:bles) 'ana c.asting'dQubt Qn"some
as:~tfuiPt~,otl$, 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
o~

atmi:1ally).

app~ie~'to:

data' observed: ,~:f 'lDWer"fre:qo,en:~ies'

," '.' , , '

"

" . ::',

(e.g~} qu:a:rt~rly

,,' "~',, "

, StothaMic Trends~ Early attempts to model -the, ,autocorrelation in

CQ:~odtty ,prices with ~. tiqie~eries apptQ~~b inVolyed fit~~qg ~e~~nrii,nistic

line'ar .trend~. Iftlw'eyet, it soon be~a~e 'appat~l1t thai. predictiQns trQm
simple, :models
i~accura~~, p~omp:t:ing',a, ~eareh}or better mqdels.

sun

were

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

~~~~~~~=
tre:nd' can 'b niodit~d' as a'

WatSon}.. .:Formally, the Dotl:on of' a "sto~hasdc

r~~om,W~k with dpft

Wh.t~ <Zt' l1~~s::(hlit~:::yarian:e~: :~~ ~u:t9Qv: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, .Jen4hj;~, to

cl)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: '~f
i~t~gr~t1()~', one' H~e~:~' r:~qlli~es' first; :dj(fefen~iitJg::to llniuc.e:..s,tationar~;~) ~~~

:a.

be: ::t~pt~~~n;t~d;)~~

ih~ .'SUIfl of 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;IA
m9~~~:;:,:pt~yid :a tts~fUl., t~pr;:~sen:t~#p:~ . of. ~l~PY .,~~QQity pr~,~>;-;$~'~~s .

~~~J~~~c~~~:)fi~~t;~~~:~;~t~~~:t~~~~.~~
.
;e,qilaJns :whY
"trends,
sometimes.:
ARl;MA..i~pie~~Il>tcj:tt{:1n al$p'
stQCfl3;S:tlc:
.ate .
qiJ~ea :un#, 'i:oaf,s :'be~~lise :tJ)e" ~~tof,~gres.siY~ pdtYnQ~~l in: the .lag QP~iatQF

. a roo~ ,rh~t:;i.s :eq~al

repf:~s~nt~tion' ()fon~e':integr~t~~,.~~J\4A.:"mO(r~t$ :h~,

to

one"
~

,..,"

> >

-Sp~:~\ ]j:tJ1ita~i:o~i~;.:p:t~:clu~e. a. :detane.~' '4i~~ssion 9 -t~~ ;lit~ratP;~:

O:P: ts~~ng'.f~*: "s~QQb~s:tjQ t~ell~ts .... rllt,c;:t~~t~Q'.}I:eCildets 'aie .ref~~t:~~,
P.eir~~;,'.
PbUUp~; ~hil$~ps iulQ."ferron;,.,anQ KWi~~kpwskf~ ~t.
Many, ~( ~~~~s~,~~S~s.

,. ','

:al.

'to.

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 show
evid~,nce

of

sto~hastic

trends. The ~vi(;leQce is far less 'el~ar witb ~ual

ne eWl~~:a:tion far'- this discrepa:ncy may- lie intlit' smaller number

data.' '
of 'annual

footrests.
, , 3 Unit

o:bS:IVatio~

typically available and,/or in the lQ:w power ()f unit

: 'DeafQfl :and:Laroque argue: that :tontr:riodity":ptiees sampl~d:"a:t

f~t tests have low power against the ait~~ati~ that the seris i~ stati~~~t'b~t
the 'Di<ikey-FU1Jer'~d PhjUi~~Perr~~ tests} a

with a" ~oot' that' is 'close ~.o Unity. "Por

stOChastic trend is the nalrhypothesis. Consequently, a stochastic

tren4' is ~ccepted <un1'~ss

(continued...)

22
annual frequencies shQij.ld be stationary farJheor~~~cal ,reasous 'altbo~gh liS
they' admit,; ::this ,is ' difficu~t' 'to', disc(}.ver e~pirica:l1y, because of the ',~mall
t

nufuher',cir::~\1tiiual
-

>

~>

oBseivaiions, typicaUY':a~ail~ble .. , ',',

~,"

'

Stochastic trend models are not ttte only way to capture' 'the
autocorrelation in commodity prices" In particular, fractionally integrated
s~oth8$dc processes (qr~ger and Joye~; Dieh~ld ~d"Rud~btisch) ~d
the' at~6v switchit)g, mQd~el ','(~ii~l~~~}: ~r:~ botJt capa~t~: '6t g~'~e~ating

sttpng 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' price

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 'can
nihve~rtts /usin~

l~ad: 'to :I~proed models

,

>

of -the ~~~V1o:t, :Qf .eo~odl:ty pnc~s.

>

': Co:fu:ovements',jtl :commoQ:1tY ':dC: ,Series'.

pri~~~ :;~~~&i~:,

:at' ]e~~

'4~t:~g;,':~riI#~'<tiiri~: 'p:eil~4s,

ttJ.ge~neT~,"', 'This':',comovem~nt 'i~'

apparetltly

>

>

t)lf~~re;rit, :'~()riunodity,
.'3;:

,:te,~pn~/:fo::~,~ove

,ptices>':js' a. :ftature ,'sharecf'-:by .many

unrebited. corritnbdides antI has three main expl~ations

(Piridyc~ ,:- 'a~dRnternberg):
Ffrst~' ':'s~pplf and' ,:demand ': sIlQt1ci in Qne

coD;rtttodity m~r~et m~y spin over into, oth,er lJlark~t~~ W,hile this ~$: a,
1:~gicdexptan<ttiD:n fat co~Odi.ttes: 'which :ate relate~' ~~,~. ~ne ,-anoth~~t ~i~l1~r
iti>pr6d~~tdlf dr', ccirisu~tnPti6n,:(e;.g.,:,:-whea("~and>"rieJ~.>:1t 'Camlot expl~in
"betWeen' lar:geLy,' 'unrelated commodities' ,( e.g., c~ttle" <~d
c9Pper)., Seoond, tri~crQetcino'IDie shobkS, say' 'to inte~e&t tates:, ~ay af(eet
all: prices .tbgethet~ :But such shocks :explafn 'only ,:'a 'sma]:l Jt;actfon' 9f, :the
~t~:: ,~qinQveinerit" in" 'cQJA~~d~ty p~~~$ (~in~yck' Jind ,RQt~I#b~ig)'" ~
~ori1ovemen.ts

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;itkts.' 'In thj~ ',- interpretaHp~

f!excess' comove~erit'\' a,rit~tlg :prices leads..to':vc>lafiliiy' tbai:'i$ ,water than'it
tlo~gllt to be. This argliItie~t also is' n;~( ~l:lY sa~tisfactory because it does
ndt acco~nt--for the 'possibility of errors"of' uhderadjustment:.'
,
II

The idea of comove,Ill~pts in commodity prices ~an be fO;fma.lized by

uSing 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 "$um of:a random
walk 'ehtt$onent
a stationary ,component, then they' are coirttegrated if'
th'ey shaie' :the ~ame random watk
'

and

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

23

where
': ''7:~,
,=" /7...
..
, ,,',
""'t
, ''''''.It

6:z~lot ~'; ::
tel~d9m~ip',;:'b~~~~l:f'<t~e'

ThIS '~h:ar~etenzes lhe; lo~:iimt{

';erttiirlbiium'
~
~""
,tWo:', 'prie~,~"'>:Y4~~ -, zt' :repr~~en~i~g -;:~tat~*nary'
-<

>~~>~>.>

>,~~>~~

>~> .~:

. ..~~.>.'>

,'".,.,',

<:~~>~>~>

i,",_.

_~

.,.

".

>

> :>~>.;~>-~< .

> ,./

~~::

"',,' ';-,' ',',,"

deViations' a~a~-:~~~:~6'::lopg~!rilf:q~n:iq#til#~'
,

,.

~ ~

>

~~~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~QIhlP~" ',:~~ ',~: ';i~l~~ie
va~~~.
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. rgr,~~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.e
residuals 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 have

prp\lide9; ~ed IesJiJts.6oodwin a~d $ch:toeder ~d some evidence j)f
cpinteg~ii:t~on',,aniritJ;g:; ,f~gionil" ,U~S~, ';'#;lttlf;' :pi:ice:s, '; al~d ,Gooa~~':' usi*g
Job~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$p~~~tio-:n;:~~:~t" :~if~i~~tiiaIs)::' }I(}wevt; ,:,AtdtrliiJnYe$dg.:~es ,:$~y~iar

,:'pnes,:' ';;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,:
c~$Qdi;tY

t~t ~int~gtati()n a,mong

tban -the Tide..' ,",

- ""

4iffe:rent c~odity 'prices is th~ exe~pdontather

.. , , :, ,;":,:' ,:" ,.. '
". ,

'It 'j~; iRip~r:tafif,:to" reqgtiize" ':that ~irft~gratibi1"is_, #df :tfi~"fi~y"

''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 'comovemnt in finite" data
series. Alternatively, the stochastic trends driving two prices could be
e~lanation

24
di~tinct

and uncorrelated, but strong

'cor~elations

may exist between

th~

stati~nary cC)~po~ents ()f the ~eties. feices .correlated in this way would
~~s~ ,~o:ve:,tPg~l~~~ iri .tb' s~ort tUn. Tb~ prolJl~1l1,. >o~ ,.~u;rse, ,is that it ,@n

be, .eXtte.m~ly:Qifieult, to >,~is:tin~is,h :l;>eWieen tbe$e alternative situations

given limited data
the low power of unit root tests.

and

<

Time-ViO'ing Volal~l~ty a:nd ,]~x:eess,: Kurtosis. Another stQchastic

'of many ~tu;nmodity price series is a tendency to move between

prop~rty

vQl~~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:m
it1:::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:~(tb~d~,tt:~nd,:jn\me:/~~r:i~s;has,Qee~,,:~~;tnQv~,P by:,:ijrst
diifferencmg. '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
:neceSsarily ,it: 'constant .::
,
<

'-not

':':rW9 ~oinmqn ~ays

co-~P4Hy pd~es' are

of

a~co'\lfl:~jng Jor time;v~ryiD:g vQla~iljty. jn

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~"m04el of c.Qm~odi.ty,.pricechanges

can be ,r~presen~ed

wlj.~r~ '. D is ,some, prob~~tJity dis~p~1?~t1on, with me,~tl ~~:rQ, :and vari-an~e ~t
a~d n~,.l is a set of h1for~ati()n avail~Ql~. at time t.. L This model allows the

c~~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',ctMPJ~,of captur:i~ng, time~Y~rY~ng' -"ol~t~~ity:" in
c6~:o4ity prices. '~liJtiv~ti~te y;ersioJ}S of tb~~ ~9MH ::m9~el'~a~~also

b~~n de~elope:d, altho~gh t~e&~ ar-e pla~ed ~y over-ff~~~~t~rizaripn, as

t~~:':~~rnp~r ,Qt. par~m~~~Js ,~~~'~~$. ,r~p~dly wi!~,<.th:e<. or4~r :qf ,ti~e lllPdel
~~g~e arid Woold~dge;,::~olt ~:~d Ai'ad~yu~a; ~y~rs 19~):1).

(Bolle:f:slev"

.-':'A: sihtple .test for conditt:on;ilJ :h'~terosc:~dasiicity' h~ be~~' 'dev~lQP~d

l>;)' 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-varying

vQlat~J~ty.

,furthermore, -::the GARCH model 'seems to- be "effective" at

tWs time~varyi1l:g vol~ti~j~ ~~, .co~o{lj~ pri~~s. Yang and
Brorsen conip~re the ability 9f GARC'll model~, mixed, qiffusiQn-jump
processes, and deterministic chaos, to best represe~t ,the stochastic

cap,m$g

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 comInOtUty

prices iSt can the urtpr~4ictable cQmpon~rtt of price movements. best :be

nQxma1.. ;.4~$tiib~doIl:J- :Q:r.. is. ;:'SQme:' other

xn:Qre >apprpprl:~t~:~::-:.: 11l~ .jails of.. >~f.titj:qal .

modeleQ', . as a." draw .;ffQm, 'i\.

tU.~t:rJhiJt~nnal: .as,sumptk~~

C:9~(>ditypfjc,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
-.. N~Yert~eI$&t:ARql{ ,~d ';'G~CH, .. mQditls."ge~er~ly: J~l. to
,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~
(~ngt)~
c~pti.\re

~:$uw~<~ht. <~b~. qQ~4iti()il~1~i$:trtbution :of:.:p:r~e

di$mbq;~Q~' 'wj;~ti 'dgt~$. of:.ft~ed:orrr

mo:v:ements:.:f6:110ws'-. a ;t-

tt:eatet:l as a ::pararnetC?(:'.-to. -be"

Yang and Brors~n, cund!ude>that

estimated. Both Bainie and Myers, and

the GARCH I1!odel with eonditianal t..distribution does a good job of
mQ~~J~~g ;tlt~ time~varying v{)latilitY.. ~nd. ;excess ~rtosis that ~pp~ar to
Cbar~Cferize ~o~~_ ~o~odlty

.'.. ' ,cash... "V:e~sus

price .secie$:

. Futur~~ .~dce

>

' --

Bih@viot~ <:~Q~:t of .. t~e f()regoi~g

di~~ss:io:ri, o(st:ochasticPf,Qpeft~es; is ~q\la:~ly. a:p:plic~~J~ to :.asJ:r~a::futures

Pti~~s,; :~pi th~ means,:O.f th~;lWQ<tP~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:.
:lll~t#ttty c~n' bezen~~ lJe~.a~s;;.tQ~:cuirent ftttpr~s q'U~te:-:~tjip:at~'S:
the' 'Systematic' (exp~tted.) .thange'in the cash price: .Thus, ~ij:ange:s .m.:prices
fo~ a :futur-es cdritract- 'conceivably-'hav-e,
predictable, component (Working

contract

>

no

~~5~).
>

-,

..

., ,

W4e:~het

>

:Qr 7no~ ~tur~s. >pdc~ ..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&... ~ot4 -:aQQe~. ~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 a

pred~c~aQ:l~ .;:(!9mpQnent i~ futij~es. price cbang~~, is ~~ket j;mprl'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~:SlCC~$~ ::(jf
'tehtncal
is"
at Qdds wit~ ,,~ademj;c ,research which u~u:any finds small autocorr~lations

;some'

hi, futures

~rice ,~hange$.{aauss'e:r. "and Cartet)~:>

';',,':

analyses:

,, :'

; 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..; ,ptie: ::cbtmg~s: "depel,lds,: ,OIl ::a::,'v~~~: ::~f.;,:.f.~of~,
mduding tUne-to-maturity,
economic c~~~tio:~t,a~~" ,$~~~(
.:':::' ,,' '",,' .,', ,',', '.' ', ' "'," s~asotlaJitY,
,,,. ",' ,",' ,',

>~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:'

.
ihe$:e ' ,-structural' systems 'are,/, commdttly

.~ii:~I~:~~S1i~~~all~i::~~~sta~~=~~tt~;~lr.1tf~~
up~arr:el~ted.-

- " CotiSequent1y~",

estimated' 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,."~i1d
in(~tel1e"-:is:':-:j:lfstified' fjti the:: ,basis" :i)f, conventIonal' ,'norfu~f Sisymptotic
distri~utidn>dleory~
'. '
" "
,.

" '. ,.fr' "l1pw~yer,-- ;,srne <::ex(>:g.~nQus ' :yati:ables.- in:,'tp'e ,tnod~l cqntain
,stohastic ,h;~~as, the:n:botp ,Vd(:~::.-~n;(t::qu*Ji:~ity, vari~bI~. ,gt~e~~ny:Ai~ve
st9tllastic 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:jables

repfese:nted_:by"the 's~pply' "a~d" d~m~nd eq~ationsli~e./ :the' structural' error
te:~)-, ,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' SptitiOll5 regr'essionJI
(q~a~g~r'a~d NewbQl~ .1914}~'' R;es:L;1lts: ftom,-OI:. or 'IV eSlimati~n ,of.sup,'
elgations 'at~. uQtonou-sly :-unr~Ha:b~(},: ::i:mplying ,tflat '~statis-ti~ally:' "~igQ:ificantt
rela~()nship~ -:exj$t> when. in fact ,thy: :d(),:riot
'
': .
tt

( > ' "

>

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

:S 'As>th~ :,~~ud--'fon;n; :ipipJie~~: eil(fogertous vari-ableg' are llii~~"'cotitfj~H:66~ ,of the
e~~nollS variables "iil'the ~ystetii:.:, ::t~e~~:-lt' ~~' oobmafioti':-~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~~'
stohasut:--treurlS as <,weIr),:The, ,e~ption :oc~urS' 'w'heii:the' ~t~~ticaUy ttbridit1g"txctge~t>uS
varnmles :are comJegrafeo., with a long-run equilibiium r.eIatio~liip wlUcltiS repr~en{ed:by
the ~aItleters in the' reduced' forri1:. Iti this' 'ease/ pace and!ot 'quiiliutY: 'viltiaBlbs ,~ be
staoon~. '1f endngenons price and quantity vatiables d,!e :stationary, 'then tne tisual IV
approach to' estIm'ation ati~ :inference' is appropriate, even when exogeno& vai:iabl~s have
stodiastic trends (Sims,'-Stockarid Watgonl~ , Thus, this case is nrit very int~testing
we
make no further comments about it.

and

The second. possibility is that the structur~l Q-isturb~ce;s:" are

s-tatj()~ary and the, :supply and, dernaJ:l;d ,~q1Ja~io~,t thereft)~~ J~pre$ent
st~ti~na;tY::~iooat ;tQ:mb:~natiQtts '-Of.. ~to~~tit~~W:-tre~~~ti8',V~#lbl~~:/:;;In' otb~r
word~~, >ptic:esy qii:~ri~ities:{ ,'an(f th~'< :exo~~~(jus ::s~pply '>'a~d :,: m~~:d shift

variables, ar6,tointegrated.,'with; the: Jobg':'rnij' 'relationship between tht;: series

represenfed 'by the:':pariimeters 'of ~be:;:~upply and dem~d ;functitn~s~
"

. Wha~ me thh~iPli~~~ons for e5tiJiRluon ~~ i~re~~

wnen

$tnlctural . ,-,equat!On$' ';a~~l1Y:;:; f:pr~$ePf" coi-n'tegr:~tion : ',;;r~la~i9:$hips?'

,:e~~.: J~ly,
,"'" ';, ,:t,,:lt,',:e,"', :'<~,O-~,~v~,iitton,a,':l,",: lV,": ',iSt~",,~~.,t,:}~"::~,~PP,li~d:: :,J9 "tli~;:;. s,_*PP~~,:;:,';im,>ii,-, .

and'

,a,:

delnan~f',;equaut)ns ;;:re:~ins ,:~o$istnf '(Hat1$~~ ;"an~:, ,r~llip~v::Phi~lip~,

Ilffl!~I~~r~\l~.tllil~

t~~O:ry "ca~oi 'be,.' :~$ed :'j:fl'-',hypotl1e$is"JSt1ng,:, ;~til: ,:wltflh ' 'Pflly~~g: ;b~, 'iaige
,silii:tpte' re,sults. ' l1, pnc.eaild:' q:tlarttttY 'variables ;re:aUy; CO "~ri:tiith 'stOchastic
trends:;' : then: " tb~: ::",sta,ndatd '.'< ittfetenct' ,~ "pr6cedlires 'typi~al~Y::' 'tis~d::-::' in
econometric InQdels-:of 'col11fuodity: <m~k~ts ate ~awed. .
" .
'

and

:, ::': It,,:turm:;. ~ut- 'thiXt;:,:the :OLS" es:timator ' 'of cEj:mte~ted ': :sEfpply
demand' 'equati<:l1ts is :aI80:' conSistent and~:' oonverges' rap~(ny 'to' tb~ :tme
parameter: \7~'Qes, despite the 'obvious 'simt;l;ltancii~ pibbleril." Li];;:e:' the IV

estimatnr, " 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~g
vq~~~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 '~Y
oi~~f<
tit ,ll~terascedasticity,'"UJ';', that':a lbss..-' of: '~:~~i~hc "hccn:r:~ an~

lar,m,

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~" trms. .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 (..d istribution for 'the innovations. If

pr~pedy, :~pe<:ifi~d? ' ;~~~h tlloqe,lf >~hou~d 'lead,. t,o JP9re~etf: ~ffi~'eil:ej ,~lld
more ,acQfrQte, :stand~rd, errors~" ,$-ome,,:nonparametdc- m~thods; wbi.h' are
more robust. to speCIfication error, have ,also' ,been developed, (Pagan and
Ullah).

@~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).,

ma;oel:s, :pen~t-m, :well ,~eJ~~iv~, '~Q :~t~ina~i:ve

G~ner~~y-ARl~

,m~>th(jdS,

when for-~~~tj:~g:-:9yr,::~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. over

lQ:-p;g~r ~i~e:" :b9~izQ~~ ,-Since ARI~ m04~~~: -:l~~ly '~~Y" ~ j~ertflation

<

.~
~

>~

.~>~~>,..;

~~

~~

~.~

>

>

,', ,MJllttv~i~~e :'::, 'tim.~~eties 'tUOael~:~:::', ':tYPi~~ny' ", Qf ' ,tl~e;. :ve~,~(Jt

a:~to~~~ssiO:~,.f\l~) -foftrt, ,can 'hep:::o~~t:~qm~ ~p~~:-of':~~e pf(~~~~ms::w~th

univariate 'AroMA fo:reca~~ing-.,6~u11ivar~a~e mQdelK, ,it,1;~uqe "imortJi1ti.ttion

c()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:trit~4,,;:V~,.,~Ei4e,ls::;~sij:aUY

m.*=y;

hay~
;Pafa~m:~~rs,;:r~latiY~ ': tQ,the J~;urnb:~r,' 0t~(:l~ta:::l)oinJs; : : ::1bu$~:':J)tior
r~: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', faiHiai~,' cQndftidn~(:foiec~ti~g,':'iri, ~i\~;::~)f~~in: ,~II~~~d'bY
the partlCular, scbeme ' used' , to id:~ntify the model.' .~oiber -source ,of
r~~~~9~iQ~ j:5 )l~i,tr(;)9t B:,~y~si~n p:r~Qrs, :~~~~;St~,~ ~Y .iLitt~r~$1.. 'a~yes:~~n
V~Yl~od~~s' h~~~,::bee,n. shown ~9 fQre~t :l)~:t~r
u:rifestric-t~d 'VAR mode~s, 'fa ,some :-~I(p~;i~atiQns.

tlJ<m, ~:IM-A

mo~l~,< ~nd

'

: . ,~~fu~t,W~<ill 'which ti~e:.:serie~,: :ab~iysis :l1:as bn"use~, -to' J~tec~i~t

CQ~Q~i~ , 'pd~~s is, ~tough," ~9~Po~~t~::J9rec:~ting.., , CQmp,Q~ite:' ':fQrecasts

c~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>~:/.>

~,'

-::::~' th~; veeto~':~ut~r~gre~i~em~~g'~'Vetag~; {VARMAr iriooel ient~, VAR:::models

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 most
economic data. Hence, most applied literature has used VAR models~
Dl;UCh:

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~~~,SiP

the
'compo~~te,are
':based' on',qutt dlsparate-'so\lr~es' ,of 'WQt~~~~~~,.:
"
:_=
,
"<~

~.

_,.

~>' _

Q\l1s~liiy Tsts"

>~

..'

'A>

"

v,

>

>A~

,,:,; ,:' ,
~

.,

..

:~~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:)o

ret~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~~~~~~~.
'Thu:rma.n
Fish-er
\:vhat:, comes 'first, :-the ,chicken
wh~icaJ:/$t\i~y~

~nd<

asked~:

or the egg?, 1)1e answer, egg p(i~s tJrax:rger calJse chic~en ,pti(.es.
~~~.;

'-v.

>

',:

~}~~>:~

~.

<

"

<

"

~p~:~~. ,the l:p~#Y;:. ,~ppli~itQ~~' o-~' '; (J(a!1ger :, ~~sality

<

>eommodl~: ;:pttces "an3Jysis:~

:"jf ,h~

becom' lear-'tnat

pm~t~$~ \vit~. '~he. ,w~t~q~t{ C0riway ,~~

,':test, .i;~

thet'e,~,r~

>::serio:us

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' a

question 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~$

conclude: that "the theory is'valid? The answer' is probably' no. An

weean

estimate:d, significant cau;sal relationship only provides weak; evide9ce

supporting the theqry. For example, Phipps' finding of -One-way cau'saIity

fro~ l~g~J~nt~ JO,}anq .pr~ces h-Wdly, ,provides ,r~~9n. tP)~~~~pt the :pr~sent
v~u~ m,oQel "Qf l~q, pric~s.,' M .fudher <$~~dis 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 it
>

certMmy
,.-

~.

,.

Iv

thf~WS

~heoT:y'in

doubt.

'. ' ,.. ,. ' .

>~~,'

.'

<

<

,: ',;q~:~ge~ :::~U&~fy ,t.~s-ts ;:1ia~e{~:~<)~e)e~;::tt~qu~~~ ':ii1, :'Pti~~:: :~~atysis:,

Oi-vell all. of the prol?;Jems, t~is IS, probably a good 'thi~g. " .

i~ re~erit ye~~

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

~:':: 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.
.. ' J'

rntis, 'ail)' yali~ :=thoty, Qf. .cQmrnoditY price aelerttUtiat:io:n shQ~ld he capable
of, .g:e.neia~i1g. "px~~, patn$ .w~i~b ,are,.. c.Q~.sisten:t, With., t11~s~, ~stim~te(j
Mstoti4aL ~cirref~ti~~$., .Th~s' stigge~t~ .tb~t p:nCo'i't5trai~e~t 'V)\Rs ,:can b~'.3

,of, 'l1yP(iili~:S,es',Albqu:t: ,the ,way' 'com~9dhy ,~~r:k~ts 'wO-rk

(G6oley . @(f'].:rOY). 'The :/;proc~$~" 'be~hs 'Wiij1' ,dat~: e~l~,ction, and,
es~~ti{jn of t~e 'unCQnst'rained VAR. Then,..-~:, 's~ch 'is ;hls~jgated , ~or
t1ie'9ti~$ of 'pric,e,::, :Qeterrtiliiation 'which ,are ,c.ap~ple :~f: :'WirID~~l~g :',~ge

vaI4:ah~4' ',sOtif:~~

~sti;m~ttd "v~~ 'J1ie$~ th~pr:i:e~ lJecd~, mairi~.ah:ied'

~,e'tested;:;~n~fey:alua~,ed with>utther wofk.'

,hwpt;neses which' ~an

'.'.'

is'

VAR - models fqr hypothesis generation

fa1r~y
it ~yoiQS ma~:y of the, difficult issu~s:-:.inv91ved in

Using

~ncort::trQve:l;"sJal pe.c~use

f~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"

:v

to

t~~t:~4: ~pmeb()w~ :TIulS, '~~lhe'lJsing' '~nqQn$~tciiri:e9 AR models

gen~~iit~,
hm~th'~$es i~ ~nc~Ptt~verSi~~:: it, ~s '~~so, '~'~~ij~quate ~. a ~~ of testing
d~f(er~~t, the;P!~es abQ~t Jl}~. Vf.-:ay ,cornmpdfty mar~~ts wor:~ .. ",
. '
.~

-'v

-~~~>.>

'.,,..V~:

->-~

Ideiltm;tattQtt, :iti' Multivariate Iim~~Serles

.-MOdcls,>
>~:

>

':

~ ~.:

>

'<,~,

f"

;.

'

,"'.

~ ~

<',

v'<

>

,.

,,':.,.. Wfil~~, ,~hc,qn$i~:~i~~~::',YM-:,m94iIs: may .be ~s~ful: 9r,.Jiyp:(j~~~~is

g~n~Jl.t!~

'-u;nd, '.t~(a ls:~~r ':e~-t~nt~ fQre:~:asting' :~d:,ca~~ality

ri6ta116w us, to

,t~s#ng~., ~~y,

00

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 .. the

historical data?
What are th.e effects of a change in demand on
equ~li~riumprices and quantitie~?
flow will the tntroductjou of a
prospet~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 to

go J~eyond. y;~(iO~#~ne~. ARs ~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 than

those typically:'use<;l to identify eonve.ntional strutUritLm~~elS.

':,A,

linear

<

~>

ecooome:trie ,model: :of

writi~~:tp,gen~r:al:;fQrih':~-;'

,Q

', .

conunodity, :matket might be

n-:

=:E
';BJ't;':( Ar4'
i-i.,. "

:BYt
""

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

>.

~.

It::::~S~n:iiiiai$;:it~IVi1;'irr::t1~~~
ihe
pla;e~t ::Qtt:

'pit~a~~~~r :Itiat~les<~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 of
ge: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, and
e~~l:Q~~p:~ rcs~r;~~~~Qf;J;$:~~~,'~p~Ue'~>:to:,~h~:::rnQq~l,,(e.g~;:>ex:elud~',s~pply,::spift~r-s
:4e~~tt4'. :'eql1a~~D:~);.;:/:: .Sq'~etims:~' " di~~fY: ':,Jdso' ,SlJgg~ts "crQs~~'
paratit:~t~r }:i~str~~tiQ~, ;'suh: ',' ,3.$'":the:,, cross~eqti3Jfon' ',rest-ticiti=oUS.. :wliiclr
typ~~aHY:.c,har~,ctetiZ~, 'r:a~Pflal ';,e~ett~tions ;models." This:-'approach, wor:ks
Wb~tf:littl~tyn:cert~irity sin:rri~nqs J~e,~e-, $:tty:ct~r:~.'{the:()tY) ,gen~nit~g,

frQ:iij' -:~ll:e:,:

well

,~~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,

exhlsion ,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~,fmodls~:.'
"'"
<

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: exists
r~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-:

g4~r~y:: ,~ ,p~~i~le'. :w~eri: 'u~airitY"

i~preci$e: ,estim:ation', when

high ~~l~:~v;e ,:to ~he number

'ts

:the, n1ode,:l as

:h~gh. "::Th~' ,disadv~ntage

;'--is

the, "ftUtffb~r .of parameters to' be: estima;#ed' is

of:data PQints availab~e. Furthermore, minimal

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

"

32
identification may not be _sufficient to answer the questions which an
analyst wants to :ask Gf the model.
Standard VAR- -identification involves leaving the dynamiC's, of the
model (i.e., the -Bi:mattices) unrestricted, with identification focusing'on the
contemporaneous interactions between variables in the model (Le., the A
and B: ~atrices). Thi:s -precludes -exogeneity-res,tr1-ctions -'S(): that all variables
are treated as endogenous. The Cholesky decomposition ~oses :'a
recursive structure on the model by restricting B to -be lower triangular and
A -diagQnal. The model i& -then -just -identified. This' approach was
popularized 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;s
in:- 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 -the
restrictions are ,still-lmposed on the-'A and B ,matrices. A recUrsive
strUctur:e:, is' 'not- required, 'however,.' and maximum' <likeli:llood methods-can
be used to estimate the model-. This :ffiore general 'Cl!pproaeh has been used
by O~d~n and Fackler to investigate the effects -of'macroeconottricpolicies
on ,agricuLture and 'by -Myers, Piggott and Tomek 'to decompose wool
market 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 that
has'a stochastic trend' aud pne that is'-stationary. Then restrictions' can be
imposed' on the B~ ,Hi and A matrices which identify one element of n't as"a
permanent shock -which is associated ,with -'the stocbastic -trend,' and the
Qtber element 'of ut as a, te;mp'oraty- s:hock $spciated' With the -stationary
component of -the- system. -Blanchard and' "Quah use this approacl1 to
identify "permanent ,shocks -(which' they call ~ggregate supply, sl'!pcl\:s) and
temporary shocks (which they cal~: aggregate demand sho~J in a
macroeconomic model.- Notice, thIs approach- to VAR identification
restricts the dynamics of the process (the Hi matrices), although all
variables are -still treated as end(}g~nous.

Structural and VAR models -are often- contrasted, -one as, founded on

econonnc theory; and the other -as largely atheoretical. But both structural
and :VAR models, ,mu~t-:,be--,:id:e:ntified' befn:r~ ,-~b~y c~n ,a4gt~ss th~< qu:~stions

to

that _:~conorilfsts typitally w~nt

ask. Furthermore, identification in the
two typ,es of model is similar in that theory- is used to restriet' the ,~ 8 i
and/or -B matrices in the general linear modeL The difference lieS in the
nature and number of the identification restrictions. Structural models opt
for 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~~ernative
ide-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": 'of
empiti~~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 :effcts- of ,two" regimes,',(with anif without
prl~ ,$.uPP,Q~t~),

Ot1. sup-ply. is,:Jtist:'o-ne,;Kample.

N~nethJ~$$, :t,b~:,~m1;l,l~~~\{,~

effect ::0: such'" re&e~ich" is," in our -judgment, modest;, because 'little: lra" been
don:e to, narrow the range of uncertainty about preferred models and to
identify 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 "dserire: ,further, testing..

Au~hor-s do' :;n61 ' always'

apprciate, that~' >,a lI.finar' empirical result, (jbt~neG 'by, pretestittg~ .: ,bas
u~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,e
ana]Y$es' are l1ypolhes~s 'generating, then other analyses 'shov1d" be
hyp~~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.

>

>

. """,(

:: The: ,first' fquirem~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~ssible
outliers. 'In 'strtictlitaI' ~od~ls, tbe 'imalysf'rilust' addt~ss 'wbe~et nbserved
vari~ables measure' the :e~ono-mic',co-n~pts< postulated ,:by' the ,1DQdet The
general question 'is-, are the-- quality, ,and quantity of the data' available
adequate to address the research problem? (The answer can be';ltno .tt)

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

Unfonunatly~

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 $JIuctural models. It is our
view, however, that nQ:.~~~W~ :~ppr(>;ach,is '~~t. :R~~het, mQd~ls should vary
with the research problem and available data. F<;lr example, if the p.roblem
r:~~J~:lir~,~ :;:afJ~lysi$:' Jif da.:~ly,., OQs.e:va,tionsJ.tim:e';5~rj:es:> ~e~9ds,are <pt?bably
g~1ng" ~~, ~~ lilIl:Mrt~nt. :.When. elther:a tl1n~fsen:es o~"a struCtUral

model e~n
1?." :~: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~::-bQth
tjp~~<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),dels
i~~~t~1)lY ' in~olve, .simplification. and... c,otnpronUse" :
,\to:: :the " degree
pqs~U~l~; they 'shol,JJ:d, be' "consistent ,both, with-' .the.Ell)" iit tne:-':data' (for "a

:nu't:

dis~~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

cu#ffrn?.Af:fO:~,

:and ',r:~pncaHon

Thi~d, models must

~I~~~a;~J,!e~.

, ',1)#~;::

:may>,> ,':tequire

~Balyses ,.ot:tbe>.alternatives'{Tomek 1992).

be'

fitted by ,an 'appropriate 'estimat0~,: 'one

,to pc .consistent w~th t~e. dat~ ,. generating prQce:ss. T!Jefe is,
a ~tadox: thal' :~griliItura;t. "econoID1sts. place ',considerable weight,
~sing: ,itp~;to-d~te, e~conD:nJ~tric proedures, '. but se:e:m to., have
rel~tiv-ely, l:U1e..o~cerned .~boil:t, the. potential inference 'prQblems associated
witQ, ~onsta~ionary; variables:, ,outliers, and ,pftesting~ One cannQt 'help' but
w~*g~r;abQUf:t:h numper, of 'S:P\l:rio~s regre:ss:i6:t1S, that.~aye,been.p:ttbli~hed: ..
thq~gnt
p~thaps,

on

been

ft?qr:th~ empjrj~al re:su~t~

sllOq.ld be, .~ubjected to (kbro~4; ba:1.t~ry 9 f

Do, the "as~titripti(}ns underlyi:ilg ,the
mo~~ ~d infe ' estim,ator app",ar. :to ,~~ corl':~t1
,How robust are the
re~~~$? Ar~ _the mode~':fes:trietip~s,:y:~ljd?:, Ultima:t~ly, :the ' researcher's
jl:l4gment is required, but this, j\lqgrne~t should, be ,:inf~rm~d 'by. in-depth
knowledge' of th~ IJrnltatio~ of tb~ nlo4el and. ofaltemative models.
~e~~~r~l1: she:ulQ JU$ude, .'both th~ .innQv~tiorlS of ,:uew: nypothe'ses and the
apptat.s~.o( ,~(:)~pe:ti~i' results. ~ ,i:1'{lplied: above, ,tbis, WinnOWing is .likely
to ~qu4-e' cQrtfj;rmati,On analY.se& anQ .tb~.'us of tests' of :~de,quacy'o:
'
,

t~st8:':0f ' ID9d:el ad~qua<;y ,(Q~,qftey

>

,.

'"

~~

"

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

te&ts of adequacy. The ScbQ}ars:hip':w~'-enYision may me:an fewer published

p~p:ef:s, 11~t. tbos~ -publ~~h~cl, w~lll:d _b~- ~f -h:i:gn~f_,qu;ality~< -Y$~nrl :empiJj~~l

p~:c~ ::~~lysls'> _i~ e~p~~piljgty:::'~iffi'c~lt Jt{ dn.-- :We ~ust 'a~~pt' tlji~<Jat _: ~*~

the -itnptIcation mat -future

excellence.

reseatcn->must he"'held to a _~igh~r-standatd'_ of

<

<

<

--'

<

",

_~~1,r~nc~s
A~elaja, A4esPJi 0;.' , ttPr~ce C~anges, :SupplY ~l~ticiti.e~" _wdustry
Org~$ati9~ 'and 'Dairy -Q~tput Djstribution/:' Ame~can Journal of
A&I'icy1tural.Economics 73 (1991):89-102.
Adrian, John, and Raymond paniel. "Impact of Socioeconomic Factors on
Consumption of Selected Food Nutrients in the United States," American
Journal of ,Agricultural Economics 58 (1976):31..38.
AlstOn,. Julian M., and James A Chalfant. "Can We Take the Con Out of
M~~t l!e~~~,_, ~tudies?" Western J~urnal of,Agricylttiral EcQnQInis 16

(July 1991):3&-45.
,. .,' " ,..
',.
. ~ICofiSl.Uner Demand Analysis According to
GJ\Rf/INortheastem Journal of ~irI-~ultur~I_-and -R.esource Economics 21
{199Z}:lt5.:139.'
'
Antonovitz, Franees, and Richard Green. "Alternative Estimates of Fed
Beef SuppJy Response to Risk,
American Journal of A&riculturaI
Economics 72 (1990):475-487.
II

Ardeni, :P. G. ItDoes the Law of One Price Really Hold?"

Journal of Agricultural Economics 71 (1989):661-669.

American

Baillie, R. T., and R. J. Myers. I'BivariateGARCH E~timation of the

Commodity Futures 'Hedge,!' Journal qf AWlied' Eqquometrics 6
<

_Op'~#nal

<

(i991): 109-124.
Baumes, Harry S., Jr., and Abner W. Woma~k. "Price Equilibrium or Price
in the Corn Sector: Journal of the Northeastern
Aericultural Economics Council 8 (Oct. 1979):275-288.
Di~q~ilipriul11

Cxcles and Chaos in Economic Equilibrium.

Princeton, NJ: Princeton University Press, 1992.

Benhabih, Jess, editor.

Beeker, Gary S. itA Theory of the Allocation of Time," Economic Journal

75 (1965):493-517.

Bernanke, B. S. "Alternative Explanations of the

Money-Income
Correlation," Carnegie-Rochester Conference Series on Public Polk)' 25
(1986):49..100.

Bessler~ David A IIRelative Prices and Money: A Vector Autoregression

Using 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~stock
Mar:l\~ts~" :~eF~:Can: '~~~~~~kof"Agri~~W1t~l ~~~nQrii!Ys :'64 (,1~~2)~J40~144~

~s~ir,b~~~ A, andjhhnL;tlhlg.;Tfi~ oi~adP{iii~A:d%is,"

Ameiimh Journal of Agriwltural J3cOrtQmics 71

,

(>

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~'~

~-~

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(19g9):5:Q~~5Q6.
=

~ <

Bev~ridge~' 'Stephen; a~i' 'Ch~l~~:' ~.: ,::,:~eis~n. ," t~A;": N~w ',APP:f:g8h::"
~l:~),::::xoumal
; :<:-:::>::~:~)~~';::>.::':'< >

"

>

t()

Series jnto" P~rtrianent"'and' 'Transitory

Ec(ul~mic Time"
C()WOO~~ljt$:>"with>_:P~~#:~J~,',Att~;~#~

OeC<>$position of

:~{) ,M~~~emellt -o~ th~./J3cl:J;~We~~

OfMQnet
"(1.98:1):lSJ~114., "
atY",EghiOmiS1
..
..
,. -.::,<./ y_y:-<
:~:<"~~"<

>V.'<~>.-:~><>~~::~:-:";'>:<: >~ >~ ~>v',,>.<:-.,

,--, , ,,' :'"

"

~(.

>

."

.-

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 "duality

Standards
Atne:rican Journal. ,of AjriculturaI.Economics
,6 6(1984):4(i6"'_
,iit{,::':-;:
:,>- ", ,-,, "', ',' ,:,.,' " - ' .
'"
-,,',
,,',' '. - ',' :"
-,
It, ,

<>.

>

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

Bollersltv

1,1

>

<

<

~,-~

>

.,

> -

"

.QQit~s~:~~~:.f~$/ Rob~i.t~::f~_,lEpgffi~ ' '~~d- J~ff:~~y, _,M. W:Q~ldd4ge. _Il~, ,t~pi:t~f

As~'e-t ,'tieing Mo:dtd 'widrTime-Varying Covatfances:~"->-::~6urttalof ~~liticaf
~CQ~owy

96

(1988)~116~131.

,~~~:; ,Qe(),ige':-E~., P., and',

FQ't~stht~: and "C9ntrol~.

1976..

.'

C!Wilym

:,M. ,Jenkins. ,Time, Series :An~lysis::,

San Fqrilcisto: Holden.:;Day,

revised editioIl~

'.

Jita~d~w," G.:' E. ,Iriteriel~tioill; ;:&Do~;& tktman~: :fqt, ,Farm .',Pro<:lu~t~ ,and,

U:mversity

II#p~icaQq~~ Jo~, .Cph~rp;l ,of~~r~~t .s~ppl~ ~~~ylval1iaState'

Am'~~ltura1 Eq>er~mentStatIon."nW1eun

680, A~gu~tJ~61.

Bt~dt,j~ A..~I1d DaY.i~ A&SSIer..dotI1P~te Fnrec~irIg:

-?-\'ppljation with U.-S.. tI~g

&QllQririgs, 93 ,(1~81J:.l3~-~40.,_
A'

~~

'A,

>

A-

,~~. ~

'Pfices~' Arilrt?n"J{jilrn~l

~<> ~~

. J\n.

of' Aiii~ltUrilJ'
,,',' " ' '..

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. Wheat

of Agricultural Economics 61 (1~85}~521-528.

Market'" :"AmeriCan
Journal
>.
~

~>

>

>..:

<

>

' ~ ~

>

<

. . ,

>

<~

>

Btorsen, B" Wade, 'Warren R. 'G,ran.t, ,an'(J :M. Edwaid<,H-ister. "A 'Hedonic

Price 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 '~d

Shel,l ,~8$ ~ol1$umptiQn/' Ariierican iQUiri?;} :o:(,A~'iuJlt1ral- ,EcOhOmics, '72

(1990);$48-5:55., -:

'

~ ,

>

".

>

.~~.se~ '.:R:~eb(#i' C., :'e~ii~r. '.' '1)je:-'ECQ'~Qmics- :Qf: Mea~ :Q4~Md'~ :(;9~rence
Ptoceedi~gson
2.~Zl, 199~~
>

thtt Economics :0 'M:eat Dem(ftJii CharJesi6n" SC, October

<

'.

nhSe;:,':~u~ben' C.~ "arid l~rry

:t. Saltthe.

flAdU!{ EqtdYal~nt "S:ca1e~::'

>

'

>

An:

Al=temative Approach, Amedcah Journal -Of Agricultural 'Ecot1otriic$ 60

tl

( 1978)~460-468.

CSiPPS, Oral, JL; <,and B,enj-amin Senauer, editors. Fnod Demand Analysis:
Impli9atioos for f):lt~~~. <,c;Q:pumption, Dept. of Agr. E.con., Virginia
Polytechnic and State Uillv.., 1986.
Carl, Ella, Richard L. Kilrher,' and: Lawrence W. Kenny. "Evaluating
AInerican Journal .of
hnplicit : ,Pric:es of I;nterme4iate Prqducts,
:AgtitultlJral Ecooomics '65 (1983):592~595~
II

' , > , . ,

',~

/ .. ~

','

>~<>

~>.

~.

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>

'i. '

Chavas, Jean-Paul, and Thomas L. Cox. uA Nonparametric Analysis of

Agricultural Technology,ll American Journal of Agricultural Economics 70,

(1988)=303-310,

'

>

':

Chavas, Jean..Paul, aud Stanley R. Johnson. "Supply Dynami~s: The ,Case

of 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: Supply
R~sponse and Inve$tm,~nt BebaviQr on U.S., Dairy Farms., II American

J~iirnal Of'Aitieultural
~

EcQnortrlcs'68

~~

-,

>

>

(1986)~55-66.,
v .

>

Chen, Dean T.~ and Shoichi Ito. "Supply Response with Implicit Revenue
Functions: A PoHcy;8,witcbirlg 'Procedure ~or Rice," AmeriCan Journal of
~~culfur~l E~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. ;~cQnpiC?~;

.. 19.

Re~~a!9h '36"(19B~I:1

',',"

"

"','<'"

','

C6bley,: Thom~ F:":~4",S~eph~n ~~~ 4iqy,.",. rrA~e,9r~~~' :M~qoec~~o~,cs~

Critiqne~n JQu~aI

Q~~~dt4.'~?,. ..~d ::0.

of Monetary Economics 15 ,(1985):283-308.

tlt()que,

lfO:~ the' ij~~a;vi~r.; of Commodity PriCes,"

ReyieW nfEco-nQ:ic Studies' 59 (H).g2):1-24.

.. .

>'.

Q~a~Q~:-:tg$, ~tl(rJq:~~ }~If~~11b~~~r., . :~:Ap :N~o~t J~:e;41

~~~~:rf~R~~~~i~'Re~~~ 70,(1~80)~3~2~~6.

.:

'

Demand :Sy~tem;I'
"
'.

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

(~97fJ):

~ 1077~

ni6Bolo,:'" :Ft~ci~' .X,: ';and' ~Uenn:,>, p'~, ,'~~;Qpl)scb..'

Smo'~~h?<'~Pi

~'~s C;:6~U~p~i.o~. Xeo-

Memory and' the Deaton .Paradox:' Review of'Bconorriics

and,StatistiC. '7:$, -(19~1):1 ..9. .
..
~

,',:,

> >

.,.

~ ~< ~

>

~~

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

~'~

>,. '.':.. II~~' Inverse: ,N~ost: Id~~l Depla.ijQ SyS:t~>rn.,

in ,,~llplied ::'t~onil:nQdin/.' PriAA: ,Anal}!~is~: :>For~casHIlgi" and Matket ,Risk.
!

,:.

"

. "

:::: ,:

.:;

"::

If ,

M~agemenf~::?:P1:9~~~dirigs ,~:( ~:~-: 1~.4> ConfJ"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 Ametiean

Jquili~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" vrjth

Esdlhat6s 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~~:,<

,"R:~preSentaticin, Estimation,. :al}d: Te:sting~~~",E . Qmet,Pica,. $p,

(1987):251..,276.'
Cotr~e~inJi:'

. '

. ,

UVeCt6r Au~otegression Tec~lriques for,. Structural

Analysis:' Revist.a.de. AnaIisis Economico 3 (1988):119-134.

Fackler, Paul L

49
F~lk, Batryr:' ,j!:fort;fi~lY :restingc:.th:' Pre~~rit V~l~e -'Mo~~r;:hf :Faririlau~,
Journal'; Qf'Agri~lt1l:r~l: ECQ~Q~:es:~t(199:~);J<tQ~': ";:~,,

Pricin~~w,,:A:tttri~a~'
~

>

,Y

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

Fe~so~, Carol A. ,A!J,EvahfatiOI:1,:';of a>Di~Q:t~U~hD\l:mM@~l.

Ulliversity ::Agr~cul~~hU
~~~

Gaidnei~

Co~ell

Eeoriomi~sReseatch 83':27~' August 1~8~t

~~>

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,:

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'Bruce L. liFutnr.es Prices in 'Supply A1talysl-s~;f: Ambiitih: Joolnal"of

Ajdcultural E5on?mi9S 58 (lQ76)-:8~,~8~.

~"""'....,..>'.......--......-.,-..,.;..;.~.....,...,----:.-....;..;.;....,_....;;."
~~kS,:1919>~

'QptifuaI ::S~~ckPitini;:~,Qf::':G~~i:~;::'

"

/:"

' ,.

Le,ongton'
,

',' ':'..

Gla~ber~" Joseph, ".Pe~~r 'H~I~be(g~r, and. M~o ,Mir~da.

Appro~cijes ,to CQIl;1m-Qdity ,Market $J;abiti~ati6,rr: 'A' C6m.p~f-~:tive

,t,tFour
l

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

Godfrey,

~.

Analysis/

-',' -,'

O. 1-4issl!ecification Tsts in pconometrics. Cambridge:

cambridge UniversitY Press,

1~~~.'

,',.,

'"

G:oqdwi~~ ~arry:J<. "IMultiyariate CQintegratiQu Tests arid, the Law.,of One

Pd~ itt lti:ternafi6Ijal: 'Whe:~t J\Iarkets;" RttifeW: Df Agiicultural' Eonowcs

14:{1992)'f117-12:4.. :,:,'

/'.;::

:; .';" - ,.' ,,.--

.;

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";' ,c''., ':

.,

Goo4~ J3atry,~, ail~, T~d. C~ .sebrQ~der. f{C~in:t~gr~tion Tests. ~d, Sp~tial.

~rite

' I~hK_age~s: -. ::in c':R~gipn~r '::Cattl MatJtets/ AitIerial1' "Journal' ,'6f'

Ajj*dtutald5ilnQmis:::13::(199:l);452:464~':

, , " -."".,".:-':

,';;,'

Gordon, ~.D..The Dist-~~~Mtion of pai~~ ..<:h.anges in Coromoditr

Pries. ,USDA 'Techtilcal"BtilIetin 170:2;'l985~"
','
:"

.:;:;':<;::_:-:;-,

FutuT~S

. ,

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 ':Rl~d~ns ~y '>"E;~o~P1tt~~d~

MQql~; a;nd-'Cfuss~Spectral-Metbcid$~tt:,:'EeOriometrita

3:7 '(-1969)~4,24-438. ,:' ,

:l{..<J0yeux~< ~A#:: nttrod~:~i()n t,o: 'I4~g~Me;m6~

~lt.l(.1>Ftacti()nM Differ:enei:ngt':' JOYm#l: of T~:m:: -se17ie:s

Grangt,:,::Clive', W.': J", and

Tfin~:::Serie-s

,Models

(l980):15..39.

Amtl~iS;] <

" , .

:' ,,", :,." :. " .;.:

~;'=~#~~,~~#l~,~~~~~~~~74)~t~~~~6; Reg~~~~. .1#..

.dt~~n, 'Ric:bard, 'a~(r 'Juli~ -:M.' Alst:o~. "'El~t-fc:ttie~
ct~dfi~tioifand 'EXteriSlol1,'~" Anietit'att', Journal.' Of

73;--(1991)-::874~81?,

:':HBh:~~ :-:~V~lu~:)r~

in AtDS Mooels: A

A2tlculiurar<EMnQmtcs'
,'.

'lPric~ Tr~~~sf.on Asymm~t11' i;n' Pork . a~nd Beef

ECQ-I~Jj;mi~~ Research ,.~~ :No~ 4

. ~~f;:k:~t&~t\}rfie<, Journal ':6f Atficultur-al

(i~90~~2i:~3tt:-, ,:.
',:: '..
H~~ttQn,

. Ja;ro0S D. ftA, New Appr:oa~h to &<!~omic Analysis of

,.:NQ~~~l~Q~rY:"

(l9:8?)i3$7~384.,

Time Series' aild.. :,:t&e'

.

:Busi~ess

.(Jycle,t EcoDQn1etrica ,:57

,. ,.

,H~~ri~\~~~':~nd P. ~."I3. :F:hiUips... 13srlm:fltion:and:lilf#ren~e in '~odefs' of

Cqmte~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&tnt,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
Eonomic>Literalure'.jO (19}!?).~~7~886.

Morg~:~ Jot1-tn~l

. :".

'

"."

Qf,
..,:

42
aei~n, Ll:ale M.
"Markup Pric~g, ,in ~.- Dypawc, Model ,Qf the Food
JnQllstty;t,Ameriean Jorirn3J of Agri~tlltur:al Ewnomics '64: (1980)~lo-18.
>

>

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Helmberger, Peter, and Vincent Akinyosoye. "Competitive Pricing and'

S~.9r~g~: t)n~er Uncertainty ,With An,Appli~tion To The u~s. Soybean

Market," American Journa-l ,of ~~ri~p1tural ,:Economics:66 (1984)=119:.130.,

ij\~pdtY, Pa~d ,F., :and "JeanF):~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:tlt,,/lllQm~ W.:-,-,~~~~n~ral ,"l3q~i1jPriUJ;n: ~M~-lysi-s: J}f :,lJ~S." :Agricu;lt}lre~'

Wbat ;:Does' 'It

~~S~~f~_42,

C()ri~i~ute1n_> :The,

No. l (1990):3--9. - "',

JOymal> ,Of' Agricultpral EconOmics

>

'

,',

,"

",'.'"

" ' ,

li~ll~~d,,' raul w~' :..:t~Stati:stics and' Ca~sal 'hiterence;"

Alfu:iican :$tatistical Associ(i~ion 81 (:19S6):94S~966.

:-

'

JdUrnalQf -the

~olt, Matthew T. '~A MUltinlarket BQund~d ,Pri~ Vari~tion

Model' Under
Corn and" Soybeans in the United States~tI

>

RatlbIial' Expectations:
American 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 -Economics

Jo~rnal

57 (1990):230-242.

H~lltk, ::J~~s" P.' "~: Approach t<J SpeC1fyiftg ~~d Esti~~#:~g' NQn~
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(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:ent
P~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.

"; "

~~s~",:S~~nf ,att;d. -:O~a~ ,D~",For~er. Anllotat;ed""W,obli~:grap~y

cginII\Qdity J7omQt1on' ~esearch (revised).

t991

,"<>

'"

,-

Cornell Unlv-.

of Generic
A _E. Res. 91-7,

JaMs, L S. "Cattle as capital Goods and Ranchers as Portfolio- Manag~rs,1l

,?f PQliti~l Econom\' 8~ (1974):480..520. ;
,

Jpu~al

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

>'

>

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.>(

itt' Far:mers'

pf Agricnltttra~,EsQ~Qt!ll~.
56 (1~741:14-:25.
>:
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-,

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~gnCu:l,tUte,:t' -~aper ']?f~s~nte:d

at

M~~ti:I1g o(>,tnt:

~ ~

14

AtiS{:r'aUan- -AgrieultuitH

Ee(}~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.
>';::' ~

._

..

Kayl~;n~ ;Mlcha;l,:$~:, , _flVe~tor, ,AIit<ttegresSlon 'Foteeast~g--'pdels: ',R:~tnt

DeyelQPme:Q:ts Applied' to . ~he :U.8. Hog Mark~t:' t\meri'tan 16umal- of

Aiticiilt~tal:E;c:O~Q~ics 70 (1988):7~1-717.
>,."

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,::'~;i;tg~ ::R*2b~(k:: },\.,;: ~~hhies' ':~d, :.'Con:se~~~hces," ':~e#~,e~n Joy~tl,a:1 'of

i\jHyltyml :E~&1l6m1CS'61 (1'919):839-848.
..
" ,
Kinnl1c~n~.:_:,H6t#)<W:and :Olan J).. ::F(}f~er.
rrl~~,<::_t~ans.@ssi~~::- 'fQJ
Aitiu~tll'talEQrib~ics

!'~Y:fnmetI)i

,MaJQt, :--::tl~~Jj-:- :,rr{}9:\l~S, it-

'69

(1~87):185~292.

'

in Far$~Ret~l.

Ame~ic~n:' Jovr~~r ,<of

,,', '"

~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?'1
JQUn1al':fit::Emn Qitttfttt.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:
PfeSs, .1911..

C9tu)D~i~,,IJitfverstty

,New~. ApprQach.

'

New York:
,.. ';

"Labor Market Dynamics iIi the U.S. Food Sector,t'

Lee1 David R.

_englnJournal of Aidcu1tyral Eco:nomics 7.0: (1985)~9O--102. '

Lee,

David R. a~d P~ter :0. "Jlelmbergt. Bs~itri~ting' Supply ':Res~ome ~

~he :" ~:~r:~~eD.~~

,<:of, ;:fa:rm, . ;PrQgra~t~,t

EcqPOmi~,,67 (1:9~5}:l93 ..203.:

'

,. -'

~,

Lev~dahl, .J. Will~am.

Die - Effeet:

., HO~$ehQl&lF90d, nm~n-~itulf~.'"

AgriWltura1

'. Americ~ lQu!l1al of

._

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>~~

>

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,of:FOQd: Stam~s" 'b,f .Income on

,USP:A ,teh~~aL;autJetin.4:j94kl~tY4~~)lY'

i;jt~~h:rL~: :t~~h~tleSf~F(}~~n~~tf~V~~rAil.~s.
fe4:t~r

.Reserve l?arrk' of Mitinea:poIis,

,r"'~rr:::NQ'" r1$, ,197~:.

;>.:- ': .. '

- ,'"

:~esearh'

'Depat-tment

;".'

::: :'

,"

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'Waddng

.-,

.,

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;ral
EgoQ~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~am

tJ~~g

><an.,: !ndustry .:Mod~l;~' )NQItheastern .JOijtl1al., of '::A.g.rieultur-al ;aIid

R:eSQurce ,Economics 19 (1990)~37~48.
, ,.

_4U~::<t.: ;C; "P*di~~eHt~:rica~j'f'.l:l, 'Strutural, Estimati~n, and.. Fo,tecastiI!:g~"

Ecot\omettica 2'8 (1960)=855.865.,

:;"

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, :of
AificiiltutaT ;~co:riQmics 62 =( 1980) :29-..37.
'
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KarJ

:raftern

M,q~qh~l1i~ q~~~ar:1Q~ ,a1,ld

,D~" '1'4~ilke .. 'f:M~deli:ng the
-ofS~~~~t:~l, ,C~:a~ge', ,.: ;~n,., :l!.S., M~~t" Dent~d:,? Amet~~ap;: . Jou-fDal .. of

Agri:Uut:al 'Edno,~ics 71 (1989):253-26'1.

' ."

".

'

M~~~~; Ro:be1}t J... t!E~tiplati~g: <Tim~!"~~J;yi~g, ,Optima~,.' He4g~', 'Ratios

~lft~res Me;idc~ts, uJQUfn~1 l?f.FUtilf~S :Markets,~ 1:( l~):91):a9~54:~-:, :"., ;.:
,

'

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' .

,on,

'T~~e ~'~:de~.J~~~onQ~~t~~~:~~~,,:~9mmQqi~t
meeting of the Australian Agricultural
1992.

'Paper presented

Anal)'sis~"
'at
~ono~cs $Qd~ty, Ca:n~erra,< F~b. lQ..12,

Price

Myers, Robert J., R. R.PIggott, and William G. Tomek. lfEsti~atjng

Sources of Fluctuations in the Australian Wool Market: An Application of

VAA:-,

:gCQnWniPS' ',34

:Metbnds~tf , ~pstrallan ;:~~~f;ria~: ,__ ,gf:, Am~~ll\#W:"

'-- :,': ',' :" , , -: ':>','

(i990}:242~26~.

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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/'
(t989)~85~~8~8~

Ntretican ,:-Joutnat of, 'AgrieUltutat 4:;Qt1omts 7t

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,AA-dOtl:l~t. Qj~mQ4~t~:~.

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N~ldv~~: :M~:~':'Pavid 'M~

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Mal&$lk ',of

,~q~q~~~:>!W~:~~#,~~ ,#&~W~~~" New"X~~k:",A~~e:i~.P~~~$~:,J~~~~,-:,<

..~:l~n~~~~~~~~j~r~~b,. tr~ge, . andt~o.~~s:' J~~~P~ll~'

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'Agn~lt:ural :Pd~es: tn 'VAR: 'Models~'t Ametf~a4,.

'Econ'omips 71' {1989)~49$-S02;

J(lUrn'a:l'- 'or' Agricidtural

<

Pag~ A.~' and 'A. :Ul~~h'. "Th:~,::E:c{)Qometric,Ana:lysi~::Qf-:Models,With"Rlsk'

Te'f;tr1S,n Journal' ,of Applied' :~cpnQmettics, 3' ,( 19~8}~~I:1Q~:.,
~

>. -

~;

,A:~

i:

> :

-to '

~aul, Allen B. liTtle Pricing of Bin~paee~';'A'Contribution,

the Price' of
Storage':' American Journal of Agticulmral Economics 52 (1970}:-l.. 12.

~~'Qn,~ktre.

\Trends .~dRa~dJni<Wa;ks i~ . Madt6eooricmuc Tillte

S:et:ies:' 'Further <E~iderice from, a"':~ew' Apx>toach/' )(nit,riitl ,:' of 'I?onomic'

Dy1jBmits an'd:J2ol1trol '-12

(1988)~291-332.

<

"

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',',

:Pbill*ps~ 'P. ::,C. B~ :*Ti~l~ $eries'Regre.$slon with a Vnit Root/' :l2cOllQmeltiea

55'{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,

Paper No. 8'69,19SS'.

':CQwl:es :,Foundatioo "I)iscussitjn'

'

Pin1~.:P~C>B.., .al!d. S,Ouli3dS:~ ~iic Pr~perti.esofRt\&idtlllIBase.d

r~$:~: {~1t">G~i,6.:t~gt~#~tlt J?;~Q~(une~t~:ca;:$~:t1'99Q')::,165.:t93~' "'" ':': ': , '

Pm~lips,

,P.

c. ~.,', ~~

Pi~rt.e ,~err(ln;~ iT~sting :t~r ~

:Serl~i:r{~gressi~tt,.~l'~~io#li~:tti!ka::'7? (198g)~3J5~~4tr"

::..~:: ';'-:-- :,

Unit Root in Time, '

",: " ::' "" ;', ;" "" ",..', '

PWpps,~ Tim T. '''Land 'Pri:Ces and 'Fa~~ B~ed Returns,U ,Americflp Joum:a;!
of'Agricultural E01lQmi~$ '"66 '( 1984)':422:"429.
'
,

46
P.~dY~~tR ..~~., . .an9}~ ,R:Q;;effl;Q~~g~. ,~'The .,Ex:~:~ss ,C~)1~qvement of Commodity

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. .

OTIER AGRICULTURAL EOONOMIOS.WOIKING PAPERS

No. 92-03

Environment, Income, and

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No. 92-04

Data Requirements for Energy

Forecasting

Timothy D. Mount

No. 92-05

oil Shoc.ks and the Demand for

Electricity

Edward C.
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Timothy D. Mount

No. 92-06

The Effects of Carbon Taxes on

Economic Growth and structure Will
D:eveloping Countries Join a Global
Agreement?

steven C. Kyle

No. 92-07

Climate Change t Sustainable

Economic Systems and Welfare

Timothy D. Mount

No. 92-08

Welfare Effects of Improving End'U$e Efficiency: Theory and

Jesus C. Dumagan
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~.

Application to Residential

Electricity

No. 92-09

The Value of segmenting the Milk

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No. 92-10

World Oil: Hotelling Depletion t or

Accelerating Use?

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No ... 92-11

Incorporating Oemographic Variables

into Oeman~ Systems for Food:
Theory and Practice

Timothy D. Mount

No. 92-12

u.s.

Dairy Policy Alternatives

Under Bovine somatotropin

Deborah

c.

Peterson

Fude Wang
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Harry M. Kaiser