Breaks, trends and unit roots in commodity prices

a robust examination

Atanu Ghoshray, Mohitosh Kejriwal, Mark Wohar

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

This paper empirically examines the time series behavior of primary commodity prices relative to manufactures with reference to the nature of their underlying trends and the persistence of shocks driving the price processes. The direction and magnitude of the trends are assessed employing a set of econometric techniques that is robust to the nature of persistence in the commodity price shocks, thereby obviating the need for unit root pretesting. Specifically, the methods allow consistent estimation of the number and location of structural breaks in the trend function as well as facilitate the distinction between trend breaks and pure level shifts. Further, a new set of powerful unit root tests is applied to determine whether the underlying commodity price series can be characterized as difference or trend stationary processes. These tests treat breaks under the unit root null and the trend stationary alternative in a symmetric fashion thereby alleviating the procedures from spurious rejection problems and low power issues that plague most existing procedures. Relative to the extant literature, we find more evidence in favor of trend stationarity suggesting that real commodity price shocks are primarily of a transitory nature. We conclude with a discussion of the policy implications of our results.
Original languageEnglish
Pages (from-to)23-40
JournalStudies in Nonlinear Dynamics and Econometrics
Volume18
Issue number1
DOIs
Publication statusPublished - 2013

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Unit Root
commodity
examination
trend
Shock
Persistence
persistence
Level Shift
Structural Breaks
Consistent Estimation
Unit Root Tests
Stationarity
Stationary Process
Trends
Trend breaks
Unit root
Commodity prices
Econometrics
Rejection
econometrics

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Breaks, trends and unit roots in commodity prices : a robust examination. / Ghoshray, Atanu; Kejriwal, Mohitosh; Wohar, Mark.

In: Studies in Nonlinear Dynamics and Econometrics, Vol. 18, No. 1, 2013, p. 23-40.

Research output: Contribution to journalArticle

Ghoshray, Atanu ; Kejriwal, Mohitosh ; Wohar, Mark. / Breaks, trends and unit roots in commodity prices : a robust examination. In: Studies in Nonlinear Dynamics and Econometrics. 2013 ; Vol. 18, No. 1. pp. 23-40.
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