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Structural Breaks, the Export Enhancement Program and the Relationship between Canadian and US Hard Wheat Prices

Authors

  • P. J. Dawson,

    1. P. J. Dawson is a Reader in the School of Agriculture, Food and Rural Development, University of Newcastle upon Tyne, NE1 7RU, UK
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  • Ana I. Sanjuán

    1. Ana Sanjuán is a Researcher in the Department of Agricultural Economics, Centre of Agrofood Research and Technology of Aragon (CITA), Zaragoza, Spain.
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  • We are grateful to David Harvey and to two anonymous referees for comments on a previous draft.

E-mail: P.J.Dawson@ncl.ac.uk

E-mail: aisanjuan@aragon.es

Abstract

This paper examines the long-term relationship between the export prices of Canadian and US hard wheat and the effects of the US Export Enhancement Program (EEP). Using monthly prices for 1974–2001, we adopt the cointegration procedure of Johansen et al. (2000) which permits structural breaks. Results show that a long-term relationship exists, and there are two breaks that coincide with the EEP. The first break is in late 1985 when the long-term US/Canadian price ratio fell by 5.5%, while the second is in early 1995 when it increased by 9.2%. Weak exogeneity tests imply that Canada is the price leader, and impulse responses show that long-term equilibrium is restored within five months following a shock to either price.

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