An Analysis of the Pass-Through of Exchange Rates in Forest Product Markets

Selin Güney (), Andrés Riquelme and Barry Goodwin
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Selin Güney: Department of Agriculture Education and Communication, Tarleton State University, Stephenville, TX 76402, USA
Andrés Riquelme: Faculty of Economics and Business, University of Talca, Talca, Maule 3460000, Chile
Barry Goodwin: Department of Agricultural and Resource Economics, North Carolina State University, Raleigh, NC 27695, USA

Agriculture, 2023, vol. 13, issue 3, 1-16

Abstract: This paper assesses the exchange rate pass-through (ERPT) for forest product prices (i.e., sawnwood, logs) by applying a two-regime Self-Exciting Threshold Autoregressive (SETAR) model. We incorporate autoregressive second-order dynamics in the regime equations. This leads to better forecasts, as integrating more lags helps capture the cumulative effects of the price dynamics. We examine sawnwood and log products traded in the United States, Malaysia (Southeast Asia) and Cameroon (West Africa). Our results illustrate the importance of applying the two-regime SETAR-type models to analyze the non-linear exchange rate pass-through for forest product markets. The impulse response analysis of each price pair supports the changing behavior of price ratios in various regimes. This may be regarded as another justification to apply models accounting for structural changes to investigate the exchange rate pass-through in a non-linear fashion. The aftershock adjustment process is similar, but the amplitude of the impact differs among markets. The results reveal potential arbitrage opportunities in the forestry industry.

Keywords: two-regime SETAR; exchange rate pass-through; forest product market; international trade (search for similar items in EconPapers)
JEL-codes: Q1 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 (search for similar items in EconPapers)
Date: 2023
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