When cointegration is interrupted: Price transmission analysis in the Italian dairy-feed industry

We analyze price transmission dynamics in the under-investigated feed supply chain, applying a special case of the Threshold Vector Error Correction model where the cointegrating relationship is interrupted. Weekly Italian dairy feed and corn prices are used, finding evidence of asymmetric price transmission when the feed industry's margins are squeezed and highly volatile. The proposed Interrupted Threshold Cointegration model represents a valid complement to existing threshold and regime-switching techniques, allowing for the application of an agile nonstructural error correction model when standard cointegration tests fail to detect any long-run relationship between price series. [EconLit Citations: Q11, Q13, C24].