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Impacts of the End of the Coffee Export Quota System on International-to-Retail Price Transmission

Authors

  • Jun Lee,

  • Miguel I. Gómez

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    • Jun Lee is a Associate Research Fellow, Korea Institute for Industrial Economics and Trade (KIET), Seoul, Korea. E-mail: jlee@kiet.re.kr for correspondence. Miguel I. Gómez is the Ruth and William Morgan Assistant Professor, Charles H. Dyson School of Applied Economics and Management, Cornell University, Ithaca, USA. We thank two anonymous reviewers and the editor for several thoughtful comments on our earlier version of the manuscript.


Abstract

We examine the impact of the end of the coffee export quota system (EQS) on international-to-retail price transmission in France, Germany and the United States. We take account of 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 all three countries and the presence of short-run PTAs during the post-EQS period in all countries, but not during the EQS period. Our results indicate that the threshold values are smaller in the post-EQS period, suggesting that retail prices became more responsive to changes in international prices. However, the speed of adjustment towards the long-run equilibrium decreases during the post-EQS period in the three countries. In the short run, non-linear impulse response analyses indicate that a shock in international prices was more persistent during the EQS period than in the post-EQS period. Moreover, we find evidence of short-run PTAs in the post-EQS period, with differences across countries. We find support for the ‘rockets and feathers’ principle in the United States; in contrast, retail prices respond faster when international prices are falling in Germany and France. We explain these differences in terms of market structures.

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