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Classifying and modeling nonlinearity in commodity prices using Incoterms

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  • Hany Fahmy

Abstract

This paper proposes a novel approach of classifying and modeling the nonlinear behavior of commodity prices using regime-switching models with exogenous transition variables. The approach rests on using the International Commercial Terms (Incoterms), also known as border prices, to classify commodities in groups that tend to display similar dynamics. The suggested border price classification is useful in identifying the key exogenous driving variables in each group. In particular, the classification suggests that inflation and oil price are the best transition candidates that are capable of capturing the nonlinear dynamics of free on board (FOB) and cost insurance and freight (CIF) prices respectively. Our statistical linearity tests and estimation results confirm this prediction and highlight the importance of the suggested border price classification in improving our understanding of the behavior of commodity prices.

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  • Hany Fahmy, 2019. "Classifying and modeling nonlinearity in commodity prices using Incoterms," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(8), pages 1019-1046, November.
    • Handle: RePEc:taf:jitecd:v:28:y:2019:i:8:p:1019-1046
    DOI: 10.1080/09638199.2019.1629616
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    Cited by:

    1. Fahmy, Hany, 2022. "Clean energy deserves to be an asset class: A volatility-reward analysis," Economic Modelling, Elsevier, vol. 106(C).
    2. Hany Fahmy, 2021. "A Reappraisal of the Prebisch-Singer Hypothesis Using Wavelets Analysis," JRFM, MDPI, vol. 14(7), pages 1-17, July.

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