Remove the effect of milk price on milk production data

#1
I have monthly milk production data. Milk production is driven by price, weather, and many other factors.

I am studying the effect of weather on-farm milk levels. I have found prices and policies have also played a vital role in lower milk levels. Before analyzing the data for the effect of weather, I would like to remove the effect of the milk price (one month lag) on milk production data. I have monthly milk price data. I would like to know how to remove the same.

Looking forward to your reply.
This is an interdisciplinary study, hence limited knowledge on this area.
 

obh

Active Member
#2
Hi Titushah,

You may run a regression.
But you need to check that there is no multicollinearity (probably there is no multicollinearity between price and weather, but please check)
 

noetsi

Fortran must die
#3
And you have to check that none of your variables interact. The problem you are going to run into is that you have a time series. Past milk production will impact future milk production. That is past levels of your Y will impact future levels of your Y quite possibly. Its also true that past milk production -> price and price -> milk production which violates key rules of regression.

None of the solutions for that are simple. VAR and VECM models are recommended but are not simple especially to interpret.