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Economics Research Institute Study Paper




Utah State University Department of Economics

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Utilizing weekly data from Cattle-~ the nature of spatial price relationships for six cattle classes was examined using several approaches, including the correlation approach, univariate, bivariate, and multivariate co integration approaches, and bivariate and multivariate Granger-causality error correction approaches. Specifically, the study determined whether the twelve marketing regions for each of the six cattle classes, were integrated using both the necessary and sufficient conditions for market integration, determined whether deviations from the law of one price (LOP) were (short-run and/or long-run phenomena, and whether price adjustments were spontaneous or nonspontaneous regardless of whether markets were perfectly or imperfectly integrated in the long run.

Apart from the multivariate Granger-causality error correction approach, which was limited by inclusion of the same number of lags for all the elements in the system, all the other approaches indicated either imperfect market integration or perfect market integration (or equivalently LOP) for all the markets within classes, regardless of the cattle class and regions considered. Deviations from LOP were both short-run and long-run phenomena, but were more prevalent in the short run compared to the long run. Adjustments were necessarily spontaneous if LOP held in the short run. However, there were cases where adjustments were spontaneous even though LOP did not hold either in the short run and/or long run. Generally, adjustments were nonspontaneous for more than half of the cases.