Nonlinear price adjustments in mutton market of East Azerbaijan Province

Studding price transmission is very important because of its application to study the efficiency of the market and its important role in determining the welfare of producers, marketing agents and agricultural consumers. Therefore, this study seeks to introduce new and advanced techniques to model the nonlinear price adjustments in agricultural markets especially mutton market in East Azerbaijan Province. Therefore, Lo-Zivot (2001), Hansen-Seo (2002) and recently Seo (2006) approaches has been discussed and threshold cointegration tests has been studied. Then, with an emphasis on recent two tests, studied vertical price transmission and nonlinear price adjustment in mutton market of East Azerbaijan with weekly prices over 1380:1-91:52 periods. Nonlinear test results, Sup-LM and Sup-Wald, confirmed existence nonlinear price adjustment and threshold behavior in the mutton market. After proving the existence of non-linear behavior of price adjustment, in order to investigate how price transmission in this market, Hansen-Seo (2002)’s two-regime TVECM model and Seo (2006)’s Band-TVECM model were estimated and Finally Hansen-Seo’s two-regime model was selected as the appropriate model. Results showed that there is significant difference between the speed of price adjustment at the farm and retail level and either in increasing regime or in decreasing regime that confirmed that price adjustment in the under study market is nonlinear.