Emma C. Stephens, Edward Mabaya, Stephan von Cramon-Taubadel, Christopher B. Barrett
We investigate the possibility that price transmission between spatially distinct markets might vary during periods with and without physical trade flows. We test for differences between trade and non-trade regimes by using generalized reduced rank regression (GRRR) techniques suggested by Hansen (2003). We apply these techniques to semi-weekly price and trade flow data for tomato markets in Zimbabwe and find that intermarket price adjustment occurs in both trade and non-trade periods. Indeed, the adjustments are generally larger and more rapid in periods without physical trade flows. This finding underscores the importance of information flow for market performance.
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