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A variable threshold band approach to measuring market linkages

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Uncertain and changing economic conditions can have substantial effects on price relationships in spatially separated, linked markets. Although numerous studies have analysed price relationships to characterize market linkage structures, most assume that the relationships and associated linkages are time invariant. This study extends the literature by modelling and estimating time-dependent market linkages that are conditional on changes in exogenous factors. The methodology is used to investigate price relationships in North Carolina (NC) corn and soya bean markets. Empirical results indicate that generalized market-linkage models provide a better representation of price relationships over time, improving the understanding of price discovery dynamics and marketing strategies.
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Keywords: D23; Q11; Q13; error-correction; integration; thresholds; transaction costs

Document Type: Research Article

Affiliations: 1: Department of Agricultural Economics and Economics,Montana State University, Bozeman,MT 59715-2920, USA 2: Department of Agricultural and Resource Economics,North Carolina State University, Raleigh,NC 27695, USA

Publication date: 01 July 2013

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