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Dynamics of Beef Supply in the Presence of Cointegration: A New Test of the Backward-Bending Hypothesis

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Following a general-to-specific strategy of model development, we develop error-correction equations for fed beef supply and feeder cattle demand. Starting with a theoretically acceptable set of variables, preliminary tests for unit roots and cointegrating vectors show stationary quantity variables and cointegrated prices. Simplification of the lag structure leads to equations with considerably richer dynamics than in previous studies. The final model passes several misspecification tests, is robust when estimated on subsamples of data, and makes more accurate out-of-sample forecasts than other models. In beef supply, the estimated error-correction model decomposes the backward-bending supply hypothesis into negative short-run and positive long-run supply elasticities at the monthly frequency.
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Document Type: Research Article

Affiliations: 1: Department of Agricultural Economics, University of Maryland, 2: Department of Resource Economics, University of Massachusetts

Publication date: September 1, 2000

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