The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives: A Smooth Transition Approach

Goodwin, Barry K. and Holt, Matthew T. and Prestemon, Jeffery P. (2008): The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives: A Smooth Transition Approach.

Abstract

Market price dynamics for North American oriented strand board markets are examined. Specifically, the role of transactions costs are examined vis–`a–vis the law of one price. Weekly data for the January 3rd, 1995 through April 14th, 2006 period are used in the analysis. Nonlinearities induced by unobservable transactions costs are modeled by estimating smooth transition autoregressions (STARs). Results indicate that nonlinearity is an important feature of these markets and that the parity relationships implied by economic theory are generally supported by the STAR models. Implications for the efficiency of spatial market linkages are examined by estimating generalized impulse response functions.

• Item Type: MPRA Paper
• Language: English
• Keywords: Law of one price, Oriented strand board, Nonlinear model; Smooth transition autoregression;Unit root tests
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q23 - Forestry; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E30 - General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes

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