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Abstract
This paper examines the degree in which the signals of the international price of
the main dairy product imported by Chile, powder milk, were transmitted to the price received by the
producers in the period 1979-2005. The existence of a possible structural break in 1989 is also evaluated,
due to the differences in trade policies oriented towards the Chilean milk sector. The results show that the
international price had a significant influence over the domestic price, explaining 52% of the variability
of the price of the milk received by the producer. The estimated speed of transmission was considerably
low, and a total transmission was obtained for a period of three to four years. The hypothesis of structural
break in the speed of transmission of international prices given by a reduction of the import taxes in 1989
was tested, and was rejected with a high level of statistical significance. This evidence suggests the
existence of important changes within the Chilean milk sector that could have offset the effects of greater
trade openness.