Threshold effects and unit roots of real commodity prices since the mid-nineteenth century

Pedro Clavijo, Jacobo Campo Robledo and Henry Mendoza

Economics and Business Letters, 2020, vol. 9, issue 4, 342-349

Abstract: This paper investigates whether a unit root process and nonlinearities can characterize real commodity prices for six major primary goods. An unconstrained two-regime threshold autoregressive model is used with an autoregressive unit root. Among the main results, it is found that terms of trade for agricultural, mineral, non-tropical, and non-oil goods are nonlinear processes that are characterized by a unit root process. The finding of nonlinearities explains why the deterioration of the terms of trade has been episodic. Additionally, we found there is no statistical evidence supporting the Prebisch-Singer hypothesis for agricultural, mineral, non-tropical, and non-oil goods.

Date: 2020
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Working Paper: Threshold Effects and Unit Roots of Real Commodity Prices Since the Mid-Nineteenth Century (2019)
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