Investigating Price Transmission in the Greek Milk Sector: A Threshold Model

This article investigates the non-linear adjustment between producer and consumer prices in the milk sector in Greece, using a two-regime threshold error correction autoregressive model. Threshold models take into account transaction costs in price transmission without directly relying in information about these costs, which are often unavailable. The results indicate that, in the long-run, price transmission is not perfect. In particular, one percent change of the producer price will cause less than one percent change of the consumer price. Furthermore, the short-run price adjustments between producer-consumer prices are asymmetric. More specifically, a negative shock of the residual term of the cointegrating relationship causes different short-term dynamic price adjustments than a positive one.