The Dynamics and Volatility of Prices in a Vertical Sector

Abstract

This paper studies the evolving distribution of prices in a vertical sector in the presence of market cycles. It investigates the dynamic linkages between farm and retail prices with an application to the Chinese pork sector. The econometric approach relies on a quantile autoregressive (QAR) model that provides a flexible representation of the dynamics of price volatility. It investigates the presence and nature of price cycles and their implications for price transmission. We document that the marketing margin is more sensitive to changes in consumer income than in feed cost. In addition, rising feed cost increases the amplitude of the cycle while higher consumer income increases the period of the cycle.