LINEAR FEEDBACK BETWEEN EUROPEAN WHEAT EXPORT REFUNDS AND WORLD WHEAT PRICES

This paper explores the dynamic relationships between European Union (EU) wheat export restitution awards and price movements in the world wheat market from November 20, 1986 through April 24, 1998. This study pairs the results of weekly EU open market tenders and corresponding foreign wheat export prices in a series of bivariate non-structural. From these models a feedback measure is calculated which estimates the contribution of innovations in wheat prices to the variance in export tenders and vice versa. Feedback was decomposed into patterns - short-term and long-term - that approximate patterns of strategic behavior or political strategy. The study showed overall feedback and short-term innovations in wheat export prices and European restitution awards are relatively small. As the length of the feedback decomposition increases directional feedback diverges. The importance of export price changes to European restitution awards increases in long-run relationships. In contrast weekly EU restitution awards decrease in their importance to wheat export price changes as decomposition periods increase. The general pattern found in the study seem to indicate that world export prices contribute substantially to long-term variations in EU open market tender awards, while these awards appear to have negligible effects on long-term international wheat price determination. Short-run and long-run feedback results provide evidence in support of an international wheat market that is minimally influenced by the administration of EU export subsidies. The long-term conduct of European wheat export policy appears to have been influenced to some degree by the international wheat market