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

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  • Goodwin, Barry K.
  • Holt, Matthew T.
  • Prestemon, Jeffery P.

Abstract

Market price dynamics for North American oriented strand board markets are examined. Specifically, the role of transactions costs are examined vis–`a–vis the law of one price. Weekly data for the January 3rd, 1995 through April 14th, 2006 period are used in the analysis. Nonlinearities induced by unobservable transactions costs are modeled by estimating smooth transition autoregressions (STARs). Results indicate that nonlinearity is an important feature of these markets and that the parity relationships implied by economic theory are generally supported by the STAR models. Implications for the efficiency of spatial market linkages are examined by estimating generalized impulse response functions.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9684.

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Date of creation: 30 Apr 2008
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Handle: RePEc:pra:mprapa:9684

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Keywords: Law of one price; Oriented strand board; Nonlinear model; Smooth transition autoregression; Unit root tests;

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  1. Lundbergh, Stefan & Teräsvirta, Timo & van Dijk, Dick, 2000. "Time-Varying Smooth Transition Autoregressive Models," Working Paper Series in Economics and Finance 376, Stockholm School of Economics.
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