Yang, Yao

May, 2024

By: Yang, Yao; Karali, Berna
Output markets usually respond asymmetrically to input price changes, with prices rising faster than they fall; this phenomenon is known as the rockets and feathers pattern. This pattern has not yet been tested for a joint production process despite strong connections among markets. We fill this gap by using a vector error correction quantile framework and apply our model to soybean meal and oil, which are jointly produced by crushing soybeans. We find that output prices respond more to input price increases when their own market is bullish but the other market is bearish, confirming the rockets and feathers pattern at the extremes of price distributions.