P2-3: Models for spatial price transmission processes

PhD student: Evgenia Pavlova
Thesis Committee: Tatyana Krivobokova, Stephan v. Cramon-Taubadel, Helmut Herwartz

The present project is devoted to modeling the spatial price transmission processes, i.e. the question
how prices in one country (region, group of counties etc.) react to the changes of prices in another
country (countries). The first models on the subject date back to 1950s and since then have been
used to study various problems in agriculture, energy markets, mineral economics as well as finance.

However, up to now the analysis was performed mainly with the help of spatially aggregated prices, e.g. national average prices, leading to the potential loss of information regarding the lower local levels. It is therefore especially interesting to incorporate scaling component into the analysis of the price transmission processes and consider different price scales simultaneously.

Considerable amount of existing work on the subject also concerns the bivariate case of two countries
involved in the trade. The aim of the present project is to develop the existing research of the price transmission into a multivariate case and answer the questions like what happens when more than two countries are involved in the trade, do prices converge towards some equilibrium or not, which country is leading and which are adapting and so on, which are not only practically relevant but also interesting from both applied economic and theoretical mathematical points of view.

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