Modelling of price transmission: Evidences from Indian silk market

Abstract

The study was conducted to investigate the degree and nature of integration among price series of Indian and Chinese raw silk and Indian reeling cocoons. The weekly average prices of reeling cocoon (Indian) and raw silk (Indian and Chinese) from 2nd January 2011 to 26th September 2020, which formed 508 sample records, were the data used for the study. The stationarity of data was checked with the help of Augmented Dickey-Fuller (ADF) (tau) test and Phillips- Perron test (PP test). Unit root test indicated that all the price series were non-stationary at level (original form of data), but were stationary after first difference. The cointegration of prices was examined by Johansen's cointegration procedure while price fluctuations were estimated by Error Correction Mechanism (ECM). The results obtained in Johansen’s cointegration and error correction models suggest that both short run as well as long run and equilibrium relationships exist between Chinese and Indian silk prices. The results also show short run as well as long run and equilibrium relationship between Indian silk prices and Indian reeling cocoons prices but there is no direct relation between Chinese silk prices and Indian cocoon prices.