Export Restrictions and Smooth Transition Cointegration: Export Quotas for Wheat in Ukraine.

We extend previous modelling approaches to identify domestic price effects of export controls. We allow for smooth transition between free-trade price transmission regimes and those under export restricting regimes, using a smooth transition cointegration ( STC) approach, rather than the more common assumption that regime changes are abrupt. Our approach has the advantage that the switch in the price transmission regime may be induced not only by an actual but also by an expected policy change. Results confirm the gradual nature of the transition between the regimes, which reflect trader heterogeneity and wheat storage decisions. We find that the STC approach outperforms alternative model approaches in terms of both regime classification and goodness of fit, when explaining Ukrainian domestic wheat prices under export controls. In particular, application of the Markov-switching error correction model ( MSECM) to the same data generates results which do not reflect any identifiable economic reality (in contrast to Götz et al., ). [ABSTRACT FROM AUTHOR]