Nonrenewable Resource Prices: Deterministic or Stochastic Trends? / Junsoo Lee, John A. List, Mark Strazicich.

Format:

Book

Author/Creator:

Lee, Junsoo.

Contributor:

National Bureau of Economic Research.

List, John A.

Strazicich, Mark.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11487.

NBER working paper series no. w11487

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Nonrenewable Resource Prices

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

In this paper we examine temporal properties of eleven natural resource real price series from 1870-1990 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. This result is important in both a positive and normative sense. For example, without an appropriate understanding of the dynamics of a time series, empirical verification of theories, forecasting, and proper inference are potentially fruitless. More generally, we show that both pre-testing for unit roots with breaks and allowing for breaks in the forecast model can improve forecast accuracy.

Notes:

Print version record

July 2005.