Nonrenewable Resource Prices: Deterministic or Stochastic Trends?

Junsoo Lee (), John List and Mark Strazicich ()

No 11487, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: C12 C53 Q31 (search for similar items in EconPapers)
Date: 2005-07
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env, nep-for and nep-res
Note: AG
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Citations: View citations in EconPapers (4)

Published as Lee, Junsoo, John A. List and Mark C. Strazicich. "Non-renewable Resource Prices: Deterministic Or Stochastic Trends?," Journal of Environmental Economics and Management, 2006, v51(3,May), 354-370.

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Journal Article: Non-renewable resource prices: Deterministic or stochastic trends? (2006)
Working Paper: Nonrenewable Resource Prices: Deterministic or Stochastic Trends? (2005)
Working Paper: Nonrenewable Resource Prices: Deterministic or Stochastic Trends? (2005)
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