Study of Causal Dependencies among Prices in the Czech Wheat Commodity Market

AbstractCzech commodity market with wheat underwent significant changes since the beginning of the market economy. In 2004, opening of the EU market brought new business opportunities for Czech plant producers. As a result, nearly third of the country's wheat production is currently realized in foreign markets. This paper focuses on exploration of Granger causality relationships among average wheat price of human consumption quality; animal feed quality and the average price of wheat in the world market (source: World Bank). Monthly time series from July 1993 to August 2013 (T=242) were subjected to stationarity and cointegration tests. Due to nonexistence of equilibrium relationships, the multivariate data were analyzed by Vector Autoregressive (VAR) model in first differences. Separate VAR models were fitted in periods before EU entry and after to verify assumptions of differential short-term dynamic relationships between the prices, as a result of country's accession to EU. Further, orthogonal impulse-response function was prepared to quantify impact of innovation shocks in the source series upon the target series. Differences in relationships were found due to exposure of the Czech market to fluctuations in the world wheat price