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Category_ID - 5
Doc_Title - Spatial Market Efficiency & Policy Regime Change: Seemingly Unrelated Error Correction Model Estimat
Doc_Author - Stanley R. Thompson, Donggyu Sul, Martin T. Bohl
Doc_Number - AEDE-WP-0014-01
Doc_Start_Date - 07/27/2001
Doc_End_Date - 07/27/2005
Doc_URL_AddLocal - C:\WINNT\ACF54.tmp
Tag_Functional - AED Econ Working Paper
Tag_SubUnit - Policy,Trade
Tag_Program - NULL
Tag_Industry - Government
Tag_Misc - Europe
Tag_Resources - Wheat
Tag_Practice - Policy,Trade

We investigate the degree to which the wheat markets of France, Germany and the United Kingdom are in spatial equilibrium and how reforms to the CAP affect the speed of convergence to the long run relationship. Due to the interrelationship among these markets and the nonstationarity of our data we introduce a seemingly unrelated regression augmented Dickey-Fuller and error correction methodology. We argue this methodology is more efficient than ordinary cointegration and error correction models. Empirically we find strong evidence of efficient spatial markets and conformity to the law of one price. Market liberalization reforms in the EU increased the co-movement of domestic and world wheat prices; our post-Uruguay Round price transmission elasticity was 0.183. Key Words: error correction model, law of one price, policy regime change, spatial market equilibrium