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Abstract
One of the most important targets of
the Common Agricultural Policy (CAP) is to facilitate
the spatial integration of agricultural markets within the
individual member states as well as within the Community.
On a spatially integrated market, price information
should freely flow between member states. According to
the European Commission, national Governments and
their regulations should help to attain the goal of a
common, integrated, and efficient market. For a small
open economy, such as Hungary, market efficiency, and
market information flow has at least two important political
consequences. The first one is the transmission of
prices by some actors of the chain either vertically or
spatially. This issue is quite relevant for Hungary, considering
the structure of its agri-food market. The second
problem relates to the national agricultural support
system completing the CAP in the New Member States
(NMS). This paper focuses on the first topic, by testing
for price transmission between German and Hungarian
producer prices. Given the changing nature of market
conditions over the past five years, a flexible Markov-
Switching model for price transmission is proposed and
estimated for the analysis of price transmission between
Hungarian and German wheat.