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Commodity Prices and Unit Root Tests

File(s)
Cornell_Dyson_wp0407.pdf (264.94 KB)
Permanent Link(s)
https://hdl.handle.net/1813/57806
Collections
Dyson School Working Papers
Author
Wang, Dabin
Tomek, William G.
Abstract

Endogenous variables in structural models of agricultural commodity markets are typically treated as stationary. Yet, tests for unit roots have rather frequently implied that commodity prices are not stationary. This seeming inconsistency is investigated by focusing on alternative specifications of unit root tests. We apply various specifications to Illinois farm prices of corn, soybeans, barrows and gilts, and milk for the 1960 through 2002 time span. The preponderance of the evidence suggests that nominal prices do not have unit roots, but under certain specifications, the null hypothesis of a unit root cannot be rejected, particularly when the logarithms of prices are used. If the test specification does not account for a structural change that shifts the mean of the variable, the results are biased toward concluding that a unit root exists. In general, the evidence does not favor the existence of unit roots.

Description
WP 2004-07 May 2004
Date Issued
2004-05
Publisher
Charles H. Dyson School of Applied Economics and Management, Cornell University
Keywords
commodity price
•
unit root tests
Type
article

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