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Abstract
This paper introduces the application of copula models to the empirical study of price transmission, with an empirical application to the U.S. hog/pork markets. Our copula approach corrects the potential bias in estimation that results from ignoring the volatility by modeling the marginal distribution of price changes through GARCH models. We also develop and apply a flexible time-varying copula framework to estimate dynamic transmission coefficients /elasticities. The model results confirm the existence of time-varying and asymmetric behaviour in price co-movements between the farm and retail markets. Positive upper and zero lower tail dependences provide evidence that big increases in farm prices are matched at the retail level whereas negative shocks at the farm level are less likely to be passed on to consumers. The application of copula techniques provides multiple, useful extension and generalizations of conventional approaches for modeling asymmetric transmissions processes on the degree of market integration and its response to price shocks under the extreme market conditions.