Beef and pork demand : an examination of the structural change hypothesis
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This study investigates whether or not a structural change has occurred in pork and beef demand during the 1950-1984 period. A sequential search technique known as the switching regression model is used to identify the most likely time frame for a structural break to occur. A Chow test is then conducted to determine if the "pre" and "post" structural change models are significantly different from a regression model estimated over the entire time frame. Unlike most meat demand investigations, this study utilizes a generalized functional form approach to equation estimation which allows the data to determine the optimal functional form. Since economic theory does not yield any a priori information regarding functional form choice, typical model estimation approaches which utilize linear and/or double logarithmic functional forms without testing for their appropriateness can yield biased test results and, hence, inappropriate conclusions. This study solves the functional form choice problem via use of the Box-Cox generalized functional form. Both nominal and deflated (CPI, 1967=100) pork and beef demand models were estimated from 1950-1984. Optimal functional forms varied with the commodity and whether or not price and income data were deflated. Beef and pork structural change tests conducted using both nominal and deflated models all rejected the null hypothesis that no structural change took place during the 1950-1984 period. The time frames identified as break points varied with the commodity and whether deflated or nominal models were uti1ized. Out of sample 95 percent prediction intervals were generated for 1985 and 1986 retail pork and beef prices. Failure of the post structural change models’ prediction intervals to contain the actual 1985 prices suggests the possibility that the changes in pork and beef demand have not been captured completely.
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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 License.