M. Ghahremanzadeh; Gh. Dashti; Z. Rasouli Birami
Abstract
Introduction: The relationship between different market levels is an essential issue in economy. Understanding of linkages between different market levels will help to assess the potential impact of agricultural policies. Given the importance of the vertical market relationship, the present study examines ...
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Introduction: The relationship between different market levels is an essential issue in economy. Understanding of linkages between different market levels will help to assess the potential impact of agricultural policies. Given the importance of the vertical market relationship, the present study examines price volatility spillover in vertical market levels of Iranian livestock and poultry market prices. For this, we use monthly returns series of broiler feed, chicken, broiler (as substitutes for broiler vertical market levels), hay, sheep, mutton (as substitutes for mutton vertical market levels), hay, calf and beef (as substitutes for beef vertical market levels) during the period of April 1997 to March 2014. Another important aspect that is considered in this study is the volatility regime switching. Many variables undergo events that seem their time series’ behavior has changed quite dramatically. Such structural breaks are mainly observed in the economic and financial time series data. The regime switching must not be totally considered as a predictable and deterministic event. As if the process has changed in the past, it could obviously change in the future too. Therefore, it should be considered as a random variable and hence a full-time series model will include probabilistic inference about switching from one regime to another regime. Hence, by doing a present study, we will be able to answer the questions such as: whether a significant regime change happened in livestock and poultry vertical market levels? Is there any significant volatility spillover in vertical market levels? Is there any difference between the volatility spillovers in high and low volatility regimes? To what extent the price volatility spills over the vertical markets?
Materials and Methods: A multivariate Markov switching model, that is best for our study aims, has been introduced by Haas and Mittnik (2008) to the volatility spillover literature which is a generalization of Haas et al. (2004) univariate model. In fact, it is a multi-regime version of Bollerslev et al. (1988) VECH model. Regime depended on variance matrices are defined by equation below:
Aij, i = 0, …, q, and Bij, i = 1, …, p, are parameter matrices. Index j is determining the volatility regime. This model does not directly estimable and to ensure positive definite covariance matrices some limitation should be imposed. For this purpose, Haas and Mittnik (2008) used Engle and Kroner (1995) proposed approach as:
Where are lower triangular matrices and Aij* and Bij* are M M parameter matrices that must be estimated (Hess and Mittnik, 2008). The Aij* elements are the coefficients that explain the effect of volatility shocks or news and the Bij* elements are the coefficients that explain the effect of past volatilities on the current volatility of prices.
Results and Discussion: The results indicate the existence of two volatility regimes in vertical market levels of all three studied markets and also successive switches of volatility regimes, especially for meat (mutton and beef) market. According to evidence obtained in this study, although the durability of low volatility regime is lower than the high volatility regime in all cases and unconditional probability of staying in the high volatility regime is lower, but still the number of months and the length of periods in the high volatility regime are not in acceptable ranges. Based on the results, different shock and volatility spillovers between the different levels of the three markets have been occurring in both regimes; although the spillovers in high volatility regimes were more severe.
Conclusion: Price spikes like those we have witnessed for Iranian poultry and livestock products in recent years are not just part of a trend of higher prices. They are also part of a different phenomenon, price volatility, as its presence can be proved from our findings of broiler feed, chicken, broiler, hay, calf, sheep, beef and mutton – a combination of the abnormal unpredictability of prices and of unusually large variations, particularly upward. Although our findings differ in the magnitude of price volatility in each studied market, we agree that livestock market is more volatile than the poultry market and that volatility will persist in the coming years as past. While higher food prices can be an opportunity for farmers, price volatility hurts both consumers and producers. This extreme range of price volatilities hurts net food consumers and makes their welfare to change time to time. Moreover, the unpredictability of prices inhibits planning, makes investment risky and discourages farmers from producing more for the market. This represents a lost opportunity for farmers to raise their incomes, and for the country to develop the potential of programs to contribute to food security.
Z. Rasouli Birami; M. Ghahremanzadeh; Gh. Dashti; R. Mohammad Rezaie
Abstract
Introduction: Over the past few years, the price volatility of agricultural products and food markets has attracted attention of many researchers and policy makers. This growing attention was started from the food price crisis in 2007 and 2008 when major agricultural products faced accelerated price ...
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Introduction: Over the past few years, the price volatility of agricultural products and food markets has attracted attention of many researchers and policy makers. This growing attention was started from the food price crisis in 2007 and 2008 when major agricultural products faced accelerated price increases and then rapidly decreased. This paper focused on the price volatility of major commodities related to three market levels of Iran’s meat market, including hay (the input level), calf and sheep (the wholesale level) and beef and mutton (the retail level). In particular, efforts will made to find more appropriate models for explaining the behavior of volatility of the return series and to identify which return series are more volatile. The effects of good and bad news on the volatility of prices in each return series will also be studied.
Materials and Methods: Different GARCH type models have been considered the best for modeling volatility of return series. Nonlinear GARCH models were introduced to capture the effect of good and bad news separately. The paper uses some GARCH type models including GARCH, Exponential GARCH (EGARCH), GJR-GARCH, Threshold GARCH (TGARCH), Simple Asymmetric GARCH (SAGARCH), Power GARCH (PGARCH), Non-linear GARCH (NGARCH), Asymmetric Power GARCH (APGARCH) and Non-linear Power GARCH (NPGARCH) to model the volatility of hay, calf, sheep, beef and mutton return series. The data on hay, calf, sheep, and beef and mutton monthly prices are published by Iran’s livestock support firm. The paper uses monthly data over the sample period of the May 1992 to the March 2014.
Results and Discussion: Descriptive statistics of the studied return series show evidence of skewness and kurtosis. The results here show that all the series has fat tails. The significant p-values for the Ljung-Box Q-statistics mean that the auto-correlation exists in the squared residuals. The presence of unit roots in the return series is confirmed by the results of the ADF and PP unit root tests. Different GARCH type models mentioned in materials and method were fitted to the return series and then have been compared based on 7 loss functions MSE_2, MSE_1, PSE, QLIKE, R2LOG, MAD_2, MAD_1, two information criteria AIC and BIC and log likelihood. The selected models for modeling the behavior of volatility in the hay, calf, sheep, beef and mutton return series are SAGARCH (1,1) with a t distribution, NGARCH (1,1), TGARCH (1,1), SAGARCH (1,1) and EGARCH (1,1) all with Gaussian distribution. The coefficient of asymmetry (γ) in all models shows signs of asymmetric behavior in volatilities so that for all of the return series except hay returns positive shocks have more effect on volatility relative than negative shocks of the same size. This evidence is vice versa for the hay return, in which negative shocks have more effect on volatility. The (α + β) in all models are greater than 0.7 which means the high persistence of shocks to volatilities. In other words, shocks might die out very gradually. This feature is more pronounced in the case of beef and calf return series with α + β greater than 0.9. Sensitivity of the current volatility to the new shock or news, α, in calf (0.76) and beef (0.71) returns are greater than that of others. The low sensitivity to the news is related to the sheep returns (0.16). The effect of current conditional variance for the next month conditional variance, β, in sheep (0.55) and mutton (0.42) returns are relatively high. Minimal β (0.14) is related to the calf returns.
Conclusion: The paper attempts to study persist shocks to volatility as well as how positive (good) or negative (bad) shocks (news) may have an asymmetric effect on the volatility of a return series of hay, calf, sheep, beef and mutton prices in Iran. The findings show signs of asymmetry and persistence in volatilities. The sensitivities of price were also, volatility to the news in the calf and beef markets is greater than other return series. By the way, the effect of current conditional variance of the next month conditional variance in sheep and mutton returns is greater than others. This finding indicates that when new shocks occurs in the meat market calf and beef returns are more influenced by them and sheep and mutton returns highly transmit the current volatility in the future. This suggests less political tensions in the country as much as possible to calm the economic and political space.
Z. Rasooli; M. Ghahremanzadeh
Abstract
In this paper, nonlinear adjustments and price transmission mechanism between the two levels of wholesale and retail for the egg market has been examined under the threshold vector error correction model (TVECM) framework using Hansen and Seo (2002)’s two-regimes). The unit root test showed that both ...
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In this paper, nonlinear adjustments and price transmission mechanism between the two levels of wholesale and retail for the egg market has been examined under the threshold vector error correction model (TVECM) framework using Hansen and Seo (2002)’s two-regimes). The unit root test showed that both wholesale and retail egg price series were integrated of order one . The Johansen co-integration test indicated that in the long term, the prices at both ends of marketing chain were quite integrated, i.e. any change in the price of one level is fully transmitted to the other level. In the next step, the SupLM test confirmed threshold adjustment between wholesale and retail series towards the long-run equilibrium. The estimated TVECM (2) showed that the error correction coefficients of retail price equation were significant in both regimes and its value in the first regime was larger than the second regime, while they were insignificant for the wholesale price equation. This indicates that when deviations in the long-run equilibrium occur, wholesalers are reluctant to react, but retailers react to both positive and negative shocks. The findings revealed that the reaction rate is much higher for the positive shocks then the negative ones. The short-run dynamics are almost the same in both regimes; however the speed of adjustment in the second regime is higher than the first regime.
M. Rashidghalam; Gh. Dashti; Z. Rasooli; F. Aminian
Abstract
Implementation of effective input policies and technology consistent with production structure contributes to the economic use of the production. Understanding the price elasticity of input and relationship between inputs in the agricultural sector is helpful in choosing appropriate input policy. In ...
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Implementation of effective input policies and technology consistent with production structure contributes to the economic use of the production. Understanding the price elasticity of input and relationship between inputs in the agricultural sector is helpful in choosing appropriate input policy. In this study we examine the production structure of pistachio in Damghan. To achieve the goal, Translog Cost Function and Derived Cost Share Equations were estimated using the theory of duality in a system of simultaneous equations within the framework of unrelated regression. Data were collected from 177 farmers in 1387. According to the results, price elasticities of inputs are negative. All of the cross- elasticities of inputs indicate complementary relationship between inputs, except for chemical fertilizer and labor as well as elasticity between chemical fertilizer and poison. Based on the calculated price elasticity, demand of labor, poison and animal fertilizer are inelastic. The results of study showed that the pistachio production has decreasing returns to scale at 0.72 percent. This indicates that farmers are not able to economize their products by increasing the size of their farms. The study recommends investigations on policies aimed at realizing the factors that increase production including pistachio fertilizer, poision and labour.
