Price and exchange rate transmission for basic grains in El Salvador

This information can be critical in anticipating the impacts of policy changes such as currency devaluations and trade liberalization. Elasticities of price and exchange rate transmission are estimated for white maize, red beans, rice, and sorghum using annual data for the 1975-98 period and two price transmission equation models: one for nominal values and another one for real exchange rates and real prices. Study findings are as follows: (1) The results for the nominal price transmission equations indicate that regional prices are almost perfectly transmitted to domestic prices for white maize and red beans, in contrast to rice and sorghum, whose prices appear to lack response to reference (U.S. gulf) prices. (2) Changes in the nominal exchange rate are almost perfectly transmitted to changes in domestic prices for all four grains, especially for white corn and sorghum. (3) The results for real price transmission equations indicate that, although white maize and red beans are strongly influenced by their real foreign prices, the real price for rice is most influenced by the real reference price. (4) Changes in the real change rates are strongly transmitted for all four grains, except rice, but much less so than changes in the nominal exchange rates. (5) Internal sorghum prices were found to be isolated from world market conditions, whether using a nominal or real price transmission equation. However, its price is strongly influenced by the U.S. price for yellow maize. Includes references.