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Testing Perfect Spatial Market Integration: An Application to Regional U.S. Cattle Markets
Author(s) -
Goodwin Barry K.,
Schroeder Ted C.
Publication year - 1990
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.1093/aepp/12.2.173
Subject(s) - market integration , economics , law of one price , simultaneity , ignorance , econometrics , financial economics , microeconomics , mid price , monetary economics , price level , philosophy , physics , epistemology , classical mechanics
Abstract A rational expectations model is used to test spatial integration in regional slaughter steer markets. Market integration is examined using the concept of the law of one price across spatially separated markets. The approach and methodology used in this study overcomes three problems associated with standard approaches to testing market integration: simultaneity biases, an ignorance or misrepresentation of serial correlation, and a neglect of price expectations. Results indicate limited integration and suggest a shift in spatial price linkages between regional cattle markets between 1980 and 1987.