The International Sugar Agreements

Abstract

In the preceding section I described specification and estimation of the basic three behavioral determinants of the world sugar economy — world systematic excess production, stock demand, and price determination. Of key importance to the analysis was the implicit assumption of parameter constancy during the sample period 1967 to 1986. While this is a standard assumption in time series econometrics, its appropriateness is obscure in our context since the International Sugar Agreements of 1968 and 1977 exhibited economic provisions aimed at stabilizing prices. As should be clear from the theoretical part of this study, the nature of our model is such that only a parameter shift can achieve price stabilization. Thus the assumption of parameter constancy is tantamount to asserting the ineffectiveness of the International Sugar Agreements. In other words: In order to assess the effects of the allegedly price stabilizing mechanisms of the ISAs, we need to test for structural change. The results of the preceding section then serve as estimates under the null of parameter constancy.