International price booms and busts are transmitted symmetrically to domestic retail prices.

Do price changes that imply domestic price increases transmit as fast as those that imply price decreases? The literature tends to show that prices rise like rockets but fall like feathers – that is, increases tend to transmit faster than price decreases.<sup>10</sup> For India, when analyzing large price shocks originated in world markets, this pattern of asymmetry does not seem to hold.

Figure 11 shows for groundnut oil, rice, bananas and coconut oil, the time it takes for troughs to transmit (horizontal axis) against the time it takes for booms to transmit (vertical axis). Under perfectly symmetrical transmission, we would observe that all states would be on a 45‐degree line (the time it took for busts to transmit would be identical to the time it took for troughs). While results show a departure from perfect symmetry, the trend shows an approximate alignment in the speed with which the adjustment materializes. Most states are in the bottom left or top right quadrant, implying fast adjustment upwards and downwards (bottom left) or slow adjustment upwards and downwards (top right). Only a few are in the top left or bottom right quadrants (that would imply slow adjustment upwards and slow downwards or fast upwards and slow downwards respectively). The case of groundnut oil shows minor departures from the symmetric pattern with faster trough transmission relative to boom transmission.

Figure 11: Comparison of time it takes for booms and busts to transmit (4 commodities, retail) <!-- Start of picture text --> Groundnut Oil Rice<br>TNad<br>Kera<br>TNad<br>Kera APra TNadMahaRajaUPraPunj Karn RajaAPraRajaAPraPunjAPraTNadTNadKeraMPraUTKarnGujaBihar Megh WBenKeraTNadUPra HaryAPraRaja TNadRajaAPraUPraMeghAPraNagaMPraHaryRajaJharUTKarnRajaGujaMizoMahaOrisHaryUPraWBen HPra APraKarnBihar Punj DelhiRajaKeraUPraTpurAPraGoaAPraKeraJKasPun TNad WBenj Karn OrisUPra<br>Delhi<br>0 5 10 15 20 0 5 10 15 20<br>Average International to Domestic Bust Distance in Months Average International to Domestic Bust Distance in Months<br>Bananas Coconut Oil<br>UT<br>RajaJKasUPraAPraKeraMahaGoaBihar GoaAPra UPra<br>MizoKeraTNadWBen APra MPra TNad UPraAPraRajaTNadUPraTNadJharRajaHary Oris Delhi Punj HPraMeghHary Naga KeraRajaAPraAPra Punj TpurUT Delhi Karn APraRajaBiharHary MahaAPra TpurKeraKeraGujaTNadAPraWBen Punj PunjKarnKeraUPraTNadTNad Raja OrisMPra<br>0 5 10 15 20 0 5 10 15 20<br>Average International to Domestic Bust Distance in Months Average International to Domestic Bust Distance in Months<br>20 20<br>15 15<br>10 10<br>5 5<br>Boom Distance in Months Peak Distance in Months<br>Average International to Domestic Average International to Domestic<br>0 0<br>20 20<br>15 15<br>10 10<br>5 5<br>Boom Distance in Months Boom Distance in Months<br>Average International to Domestic Average International to Domestic<br>0 0<br><!-- End of picture text --> <!-- Start of picture text --> Source: Authors’ calculations.<br><!-- End of picture text --> Markets operate relatively efficiently transmitting signals when they are shocked with sizable international price changes. Booms and busts of food prices, either originating domestically or abroad are transmitted to different Indian markets and in a relatively symmetric manner, even if to different 10 According to Peltzman’s comprehensive study of 165 producer goods and 77 consumer goods “in two out of three markets, output prices rise faster than they fall” (Peltzman, 2000; p. 480). Bacon (1991) was the first to use the term rockets and feathers to describe the patterns of retail gasoline prices in the UK. Varela and Taniguchi (2013) report a similar finding for wheat and wheat flour markets in Indonesia.

14