nep-res New Economics Papers
on Resource Economics
Issue of 2005‒07‒18
one paper chosen by
Maximo Rossi
Universidad de la República

  1. Nonrenewable Resource Prices: Deterministic or Stochastic Trends? By Junsoo Lee; John A. List; Mark Strazicich

  1. By: Junsoo Lee; John A. List; Mark Strazicich
    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: Q31 C12 C53
    Date: 2005–07

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