Spatial price dependence by time scale: Empirical evidence from the international butter markets

- Analysis of price dependence between butter prices in Oceania and the EU
- Wavelets are used initially to decompose the activity of the price changes by time scale.
- Then, copulas are applied to extract information about dependence at different frequencies.
- Global price co-movement increases with the time scale.
- There is symmetric price co-movement at the low scales but asymmetric at the high ones.

The objective of the present work is to investigate price dependence (co-movement) in the international butter markets. This is pursued using monthly wholesale prices from Oceania and the European Union and two non-parametric tools, namely, the copulas and the wavelets. The empirical results suggest that: (a) The price linkages in the two butter-producing regions are weak in the short-run but they become much stronger in the long-run. (b) The time horizon (time scale) is relevant not only for the intensity but for the structure of price co-movement as well; in the long-run, there is an asymmetry in price dependence in the sense that strong positive shocks are transmitted with a higher intensity compared to strong negative ones.