Price dynamics in the international wheat market: Modeling with error correction and directed acyclic graphs

In this paper we examine dynamic relationships among wheat prices from five countries for the years 1981-1999. Error correction models and directed acyclic graphs are employed with observational data to sort-out the dynamic causal relationships among prices from major wheat producing regions: Canada, the European Union, Argentina, Australia, and the United States. An ambiguity related to the cyclic or acyclic flow of information between Canada and Australia is uncovered. We condition our analysis on the assumption that information flow is acyclic. The empirical results show that Canada and the U.S. are leaders in the pricing of wheat in these markets. The U.S. has a significant effect on three markets excluding Canada.