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On Jumps and Arch Effects in Natural Resource Prices. An Application to Stumpage Prices from Pacific Northwest National Forests

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  • Saphores, Jean-Daniel
  • Khalaf, Lynda
  • Pelletier, Denis

Abstract

Models used for natural resources prices usually preclude the possibility of large changes (jumps) resulting from discrete, unexpected events. To test for the presence of jumps and ARCH effects, we propose to use bounds and bootstrap test techniques, thus solving the unidentified nuisance parameter problem. We apply this approach to stumpage price time series from the Pacific Northwest and find evidence of jumps and ARCH effects. Using real options, we then develop a stopping model to assess the impact of neglecting jumps on the decision to harvest old-growth timber. Our numerical results show the importance of modeling jumps explicitly.

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File URL: http://www.ecn.ulaval.ca/w3/recherche/cahiers/2000/0003.pdf
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Bibliographic Info

Paper provided by Université Laval - Département d'économique in its series Cahiers de recherche with number 0003.

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Date of creation: 2000
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Handle: RePEc:lvl:laeccr:0003

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Keywords: Jump processes; ARCH; Bootstrap; Stumpage prices; Real options;

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Cited by:
  1. Lee, Yen-Hsien & Hu, Hsu-Ning & Chiou, Jer-Shiou, 2010. "Jump dynamics with structural breaks for crude oil prices," Energy Economics, Elsevier, vol. 32(2), pages 343-350, March.
  2. Jean-Thomas Bernard & Lynda Khalaf & Maral Kichian & Sebastien Mcmahon, 2008. "Forecasting commodity prices: GARCH, jumps, and mean reversion," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 27(4), pages 279-291.
  3. Khalaf, Lynda & Kichian, Maral, 2005. "Exact tests of the stability of the Phillips curve: the Canadian case," Computational Statistics & Data Analysis, Elsevier, vol. 49(2), pages 445-460, April.
  4. Hultkrantz, Lars & Andersson, Linda & Mantalos, Panagiotis, 2014. "Stumpage prices in Sweden 1909–2012: Testing for non-stationarity," Journal of Forest Economics, Elsevier, vol. 20(1), pages 33-46.
  5. Jean-Thomas Bernard & Lynda Khalaf & Maral Kichian, 2004. "Structural Change and Forecasting Long-Run Energy Prices," Working Papers 04-5, Bank of Canada.
  6. Khalaf, Lynda & Saphores, Jean-Daniel & Bilodeau, Jean-Francois, 2003. "Simulation-based exact jump tests in models with conditional heteroskedasticity," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 531-553, December.

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