497 Journal of Economics and Behavioral Studies Vol. 4, No. 9, pp. 497-504, Sep 2012 (ISSN: 2220-6140) Threshold Effects and Asymmetric Price Adjustments within the Ghanaian Maize Market Henry de-Graft Acquah University of Cape Coast, Ghana henrydegraftacquah@yahoo.com Abstract: This study investigated co integration and asymmetric adjustments in the end equilibrium between Ghanaian retail and wholesale maize markets using the Enders and Siklos technique. Two competing models, namely Consistent Threshold Autoregressive (C-TAR) and Consistent Momentum Threshold Autoregressive (C-MTAR) models were estimated. Following the application of a standard model selection technique, C- MTAR model is selected as most appropriate. The results of the C-MTAR model confirm that the retail and wholesale prices of maize in Ghana are co integrated with threshold adjustment. Furthermore, it suggests that the process is asymmetric when the retail and wholesale prices of Ghanaian maize adjust to achieve the long- term equilibrium. Additionally, the adjustment is relatively faster when the price differential is increasing than when it is decreasing. Keywords: Asymmetric price transmission; Threshold adjustment; Co integration, AIC, BIC 1. Introduction The agricultural market is characterized by movements in the commodity prices that typically depend on several of factors, both exogenous and endogenous. These movements may be upwards or downwards in response to changes in the predictors. However, the magnitude of positive and negative responses may differ for similar positive and negative variations in the predictors. In such a case, we can say that the variables display asymmetric adjustment in the price transmission process. Standard linear co integration models have been employed in measuring asymmetric adjustments. However, they do not capture the full extent of price dynamics when there is asymmetric adjustment to the long run equilibrium. This is because they assume symmetric adjustment. Under this condition, the unit roots and co integration tests in the presence of asymmetric adjustment have low power. In order to address these problems, Enders and Siklos (2001) introduce the threshold co integration analysis, which extends the Engle and Granger’s procedure to encompass possible asymmetric adjustment to equilibrium. However, previous studies analyzing price asymmetry in Ghanaian maize markets have not focused on testing asymmetric adjustment in the long run relationship between the retail and wholesale prices using the recently developed Enders and Siklos procedure. Empirically, no studies have been devoted to apply the methodology to examine whether the adjustment is asymmetric within the Ghanaian vertical maize markets. Additionally, the nature of vertical price transmission in the Ghanaian maize market is an issue that has not received adequate attention. This research fills the gap by employing the recently developed Enders and Siklos (2001) threshold co integration methodology to empirically test the existence of asymmetries in the long run relationship between the retail and wholesale maize prices. Subsequently, the threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) models are estimated to address the problem of asymmetry within the Ghanaian retail and wholesale maize markets. First, this study test for evidence of co integration between the retail and wholesale prices. Second, this study test for evidence of asymmetric adjustment in the long run equilibrium. 2. Literature Review Numerous studies have focused on investigating price transmission using the Houck’s approaches, which segment prices in increasing and decreasing phases to enable it test for asymmetry. However, the Houck’s method doe not account for the long run relationship between the price series. Subsequently, Engle and Granger (1987) introduce the Error Correction Modeling, which allows the test for asymmetry to take into consideration the long run relationship between the price series. However, their methodology considers