Chickpea Case Study

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Theoretical Framework The supply aspect of the Chickpea (Gram) has been explained with the help of two relationships. The first equation is an area response relation described by the price and non-price factors while the second one represents the production of Chickpea explained by the acreage and non-acreage factors. Majority of studies conducted on supply response of agricultural commodities used Nerlovian model as the underlying framework for their analysis. According to Nerlove (1958), it is difficult for the farmers to make complete adjustment while responding to different economic variables or farmers may find it difficult to adjust instantaneously. In such cases distributed lag model may be suitable for measuring the farmer’s response behaviour. In the Nerlovian framework the long-run equilibrium supply Y_t^* is assumed to be a linear function of the expected price P_t^* Y_t^*=a+bP_t^*+U_t --------------------- (1) The expected price P_t^* is adjusted in each time period by a proportion…show more content…
Akaike Information Criteria (AIC) and Schwartz Information Criteria(SIC) criteria have been used to decide the lag length. If the series are stationary then the regression equation incorporating variables in level form may be run otherwise one has to resort to co-integration and Error Correction Mechanism which necessitates that the series have be integrated of the same order I(1). But in the present analysis the variables under consideration are stationary hence, adopting the Nerlove’s adjustment lag model as the basic framework regression equation is run using variables at levels. Various model adequacy checks have been used to test the goodness of fit of the estimated model. Tests like Variance Inflating Factor for multicollinearity, stationarity of the residuals, serial correlation test, model stability diagnostics have been used for evaluation of the fitted

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