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Abstract

In this paper, relationships between U.S. and Canadian wheat prices are examined using cointegration and error correction approach. The use of an error correction model is appropriate because U.S. and Canadian wheat prices are first differenced stationary and cointegrated. The results suggest that both U.S. durum and hard spring wheat prices respond to restore the equilibrium relationship with the corresponding Canadian price while the Canadian price does not respond to restore equilibria. That is, the structure of the respective policies is such that Canadian markets are largely insulated from influences flowing from the United States while U.S. markets are not insulated from Canadian influences. These results could be interpreted to support the contention of U.S. producers that Canadian production subsidies and implicit export subsides have undermined the U.S. price support program. These results also support the price leadership role for Canada in both the durum and hard spring wheat market.

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