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The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives: A Smooth Transition Approach

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Author Info
Joseph V. Balagtas
Matthew T. Holt

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Abstract

This article extends the recent literature on the Prebisch-Singer hypothesis of a long-run decline in the relative prices of primary commodities. Our main innovation is testing for and estimating nonlinear alternatives to a secular deterioration. Specifically, we use bootstrap procedures to test the linear unit root model against models belonging to the family of smooth transition autoregressions (STARs) for twenty-four commodities, 1900-2003. In nineteen cases we reject the linear null at usual significance levels. In sixteen cases we are able to successfully fit STAR-type models. Simulation results show there is little support for the Prebisch-Singer hypothesis. Copyright Copyright 2008 Agricultural and Applied Economics Association.

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Article provided by American Agricultural Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 91 (2009)
Issue (Month): 1 (02)
Pages: 87-105
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Handle: RePEc:bla:ajagec:v:91:y:2009:i:1:p:87-105

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  2. Z. Lomnicki, 1961. "Tests for departure from normality in the case of linear stochastic processes," Metrika, Springer, vol. 4(1), pages 37-62, December. [Downloadable!] (restricted)
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  6. Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, vol. 74(1), pages 59-75, September. [Downloadable!] (restricted)
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  7. Eklund, Bruno, 2003. "Testing the unit root hypothesis against the logistic smooth transition autoregressive model," Working Paper Series in Economics and Finance 546, Stockholm School of Economics. [Downloadable!]
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  1. Bekkerman, Anton & Goodwin, Barry D. & Piggott, Nicholas E., 2009. "Spatial Analysis of Market Linkages in North Carolina Using Threshold Autoregression Models with Variable Transaction Costs," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49282, Agricultural and Applied Economics Association. [Downloadable!]
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