Non-renewable resource prices: Deterministic or stochastic trends?
- ASU Author/Contributor (non-ASU co-authors, if there are any, appear on document)
- Mark Strazicich Ph.D., Professor (Creator)
- Institution
- Appalachian State University (ASU )
- Web Site: https://library.appstate.edu/
Abstract: In this paper, we examine temporal properties of 11 natural resource real price series from 1870 to 1990. Recent studies by Ahrens and Sharma [Trends in natural resource commodity prices: deterministic or stochastic? J. Environ. Econom. Manage. 33(1997)59–74], Berck and Roberts [Natural resource prices: will they ever turn up? J. Environ. Econom. Manage. 31(1996)65–78], and Slade [Grade selection under uncertainty: least cost last and other anomalies, J. Environ. Econom. Manage. 15(1988)189–205], among others, find that many non-renewable resource prices have a stochastic trend. We revisit this issue by employing a Lagrangian multiplier unit root test that allows for two endogenously determined structural breaks with and without a quadratic trend. Contrary to previous research, we find evidence against the unit root hypothesis for all price series. Our findings support characterizing natural resource prices as stationary around deterministic trends with structural breaks. We additionally show that both pre-testing for unit roots with breaks and allowing for breaks in the forecast model can improve forecast accuracy. Overall, the results in this paper are important in both a positive and normative sense; without an appropriate understanding of the dynamics of a time series, empirical verification of theories, forecasting, and proper inference are potentially fruitless.
Non-renewable resource prices: Deterministic or stochastic trends?
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Additional Information
- Publication
- Lee, J., List, J.A., & Strazicich, M.C. (2006). Non-renewable Resource Prices: Deterministic or Stochastic Trends? Journal of Environmental Economics and Management, 51(3): 354-370 (May 2006). Published by Elsevier (ISSN: 0095-0696). http://0-dx.doi.org.wncln.wncln.org/10.1016/j.jeem.2005.09.005
- Language: English
- Date: 2006