Indian Journal of Science and Technology
Year: 2017, Volume: 10, Issue: 19, Pages: 1-14
Mustofa Usman1*, Dhia Fadhilah Fatin1 , M. Yusuf S. Barusman2 , Faiz A. M. Elfaki3 and Widiarti1
1Department of Mathematics, Faculty of Sciences and Mathematics, University of Lampung, Indonesia; [email protected] 2Department of Management, Universitas Bandar Lampung (UBL), Indonesia; [email protected] 3Department of Mathematics, Statistics and Physics, College of Arts and Sciences, Qatar University, Doha, Qatar; [email protected]
*Author for the correspondence:
Department of Mathematics, Faculty of Sciences and Mathematics, University of Lampung, Indonesia; [email protected]
Objectives: To determine the relationship among Price Index Received by Farmer (PIR), Price Index Paid by the Farmers (PIP) and the Farmers’ Terms of Trade (FTT) by using the model VECM, and to attempt to know the behavior of (FTT) if there is a shock in variables PIR and PIP. Methods/Statistical Analysis: Vector Error Correction Model (VECM) is a model Vector Autoregressive (VAR) which can be used for data series which are non stationery and have cointegration relationship (long term relationship). The model VECM can also be used to see the movement in one variable to give a response regarding the shock produce by another variable through the graph of Impulse Response Function (IRF). Findings: Based on the data of Farmers’ Terms of Trade in Indonesia over the periods from January 2008 to November 2013, we have determined that the best model VECM is VECM order 2 (VECM (2)). Applications: Based on the graph of the Impulse Response Function (IRF) we have established that the response of FTT toward the shock of a price both received and paid by the farmers is fluctuative and temporary over time.
Keywords: Farmers’ Terms of Trade (FTT), Impulse Response Function, Price Index Received by Farmer (PIR), Price Index Paid by the Farmers (PIP), VAR, VECM
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