Estimation of Supply Response of Potato Crop: Short run Dynamics and Long run Equilibrium with Error Correction Mechanisms

GANDHIMATHY

doi:10.56093/ijas.v96i10.169581

Authors

GANDHIMATHY BHARATHIYAR UNIVERSITY

https://doi.org/10.56093/ijas.v96i10.169581

Keywords:

Key words: Nerlovian Dynamic Model, Engel Granger Co-integration Analysis, Error Correction Term, Differential Co-efficient of Error Correction Term

Abstract

The present study explores the economic relationship between yield and price of potato crop in Tamil Nadu for a period two decades by using Nerlovian Dynamic Model and Engel Granger (EG) two step procedures. Nerlovian model is more comprehensive which includes price, non-price and exogenous factors like rainfalls. EG model takes two variables but results are more elegant. In this study, residual errors are used for model diagnostics to fulfill statistical and econometric criteria. The coefficient of error correction term shows the annul speed of the supply returns to equilibrium, after its deviation from the long run equilibrium. The results implies that 72.6 percent and 68.4 percent of price changes in time period t-1 are rectified in t^th period annually, by the changes in supply in EG co-integration and Nerlovian analysis respectively. The study emphasized that the establishment of long run equilibrium relationship is having theoretical validity only and this economic equilibrium does not exist in real field due to the dynamic changes in price and supply.

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