Modelling the Cyclical Behaviour of Wine Production in the Douro Region Using a Time-Varying Parameters Approach by

This paper investigates the cyclical behaviour of the wine production in Portugal’s Douro region during the period of 1932 to 2008. In general, wine production is characterised by large fluctuations. These fluctuations may cover the existence of deterministic cycles. Hence, in this paper, we decompose the wine production’s variance in order to find the dominating production cycles In the next step we try to explain those cycles using a dependent variable, namely the medium spring temperature for the period 1967 to 2008. We estimated a Time-Varying Autoregressive Model, which could explain 76% of wine variability (R=0.76; n=69; p<0.000). When the temperature was incorporated the R-squared is much higher (R=0.98; n=36; p<0.000) and the Akaike criterion value is lower. Hence, medium spring temperature causes a large amount of these cycles and the wine production variation reflects this relationship. In addition to an upward trend, there is a clearly identifiable cycle around the long term trend in Douro wine production. We also show how much of the production cycle and what cycle in particular is explained by the medium spring temperature. We use the short time Fourier Transform to decompose the link between wine production and temperature. We find: i) wine production is characterised by 4.8 and 2.5 year cycles; ii) by there is a strong link between wine production and the mean temperature in spring; iii) this link is not constant, but stable. In particular, the temperature is responsible for 5.2 and 2.4 year cycles – which has been happening since the 1980s, iv) the spring temperature can also be used to as an indicator for the six year and one year cycles of wine production.