Vertical price transmission in wheat and flour markets in Bangladesh: an application of asymmetric threshold model

The analysis of price transmission in vertical markets is challenged by fuzzy policy environments in the case of developing countries. This paper employs threshold cointegration that takes into account the asymmetric adjustment towards a long-run equilibrium and short-run price transmission in vertical markets of wheat and flour in Bangladesh. We find evidence of threshold effects. The speed of adjustment towards the long-run equilibrium is different when the price deviations exceed the threshold value from when price deviations are below the threshold. We find evidence of short-run price asymmetries implying that downstream price responds faster when upstream price increases than when the latter falls