Impacts of the End of the Coffee Export Quota System on International-to-Retail Price Transmission
Lee, Jun; Gomez, Miguel I.
We examine the impact of the end of the coffee export quota system (EQS) on internationalto- retail price transmission in France, Germany and the United States, taking into account the existence of long-run threshold effects and short-run price transmission asymmetries (PTAs). We find evidence of threshold effects in both periods (EQS and post-EQS) in the three countries and the presence of short-run PTAs during the post-EQS period in the three countries, but not during the EQS period. Our results indicate that the threshold values become smaller and the long-run speed of adjustment decreases during the post-EQS period in the three countries. In the short-run, retail prices in the three countries are more responsive to positive than to negative changes in international prices during the post-EQS period, providing evidence of short-run PTAs. However, changes in international prices are passed on to retail prices to a greater extent in the United States than in the two European countries. Nonlinear impulse response analyses indicate that a shock in international prices tends to persist more during the EQS period than in the post-EQS period. This suggests that price transmission increased in the post-EQS period, regardless of the direction of the change in international prices. Our results suggest that accounting for thresholds and asymmetries improves the accuracy of impact assessments of policy changes on price transmission processes.
WP 2011-15 August 2011JEL Classification Codes: C32; Q17
Charles H. Dyson School of Applied Economics and Management, Cornell University
Asymmetric Price Transmission; Error Correction Model; Roasted Coffee; Threshold; France; Germany; United States