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Commodity Prices And Unit Root Tests

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Author Info
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.

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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2004 Annual meeting, August 1-4, Denver, CO with number 20141.

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Date of creation: 2004
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Handle: RePEc:ags:aaea04:20141

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Keywords: Research Methods/ Statistical Methods;

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  6. Newbold, Paul & Vougas, Dimitrios, 1996. "Drift in the Relative Price of Primary Commodities: A Case Where We Care about Unit Roots," Applied Economics, Taylor and Francis Journals, vol. 28(6), pages 653-61, June. [Downloadable!] (restricted)
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  18. Chambers, Marcus J., 2004. "Testing for unit roots with flow data and varying sampling frequency," Journal of Econometrics, Elsevier, vol. 119(1), pages 1-18, March. [Downloadable!] (restricted)
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  19. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July. [Downloadable!] (restricted)
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