Greek meat supply response and price volatility in a rational expectations framework: A multivariate GARCH approach

This paper examines supply response models in a rational expectations framework for each one of the fourmajor Greek meat markets, i.e. beef, broiler, lamb and pork. A multivariate GARCH model with Choleskydecomposition is used to incorporate price volatility into the rational expectations supply response model for eachmeat category and as a result the conditional covariance matrix remains positive definite without imposing anyrestrictions on the parameters. The empirical results confirm the existence of rational behaviour by meat producersin the four examined markets and indicate that price volatility is a major risk factor in Greek meat production whilefeed prices and veterinarian medicine prices are both important cost factors. Furthermore, the last CommonAgricultural Policy reform is found to have a negative impact on the beef and lamb production in Greece.