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Mean Reversion in Agricultural Commodity Prices in India

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  • Luis Gil-Alana

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  • Trilochan Tripathy

Abstract

This paper deals with the analysis of several commodity prices in India using an approach based on fractional integration and focusing on the degree of persistence of the series. We examine seven agricultural prices: rice, wheat, maize, bajra, jowar, black gram and arhar. The results can be summarized as follows: in five of the series examined (rice, wheat, maize, bajra and jowar) we find evidence of mean reversion with the effect of the shocks disappearing in the long run. On the contrary, in two of the series (black gram and arhar) we cannot reject the null of a unit root with the implication that shocks have a permanent nature. Thus, in the event of a negative shock, strong measures must be adopted in these two series since the effect of the shocks will persist forever. Copyright International Atlantic Economic Society 2014

Suggested Citation

  • Luis Gil-Alana & Trilochan Tripathy, 2014. "Mean Reversion in Agricultural Commodity Prices in India," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(4), pages 385-398, November.
  • Handle: RePEc:kap:iaecre:v:20:y:2014:i:4:p:385-398:10.1007/s11294-014-9489-5
    DOI: 10.1007/s11294-014-9489-5
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    References listed on IDEAS

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    1. Diebold, Francis X. & Rudebusch, Glenn D., 1991. "On the power of Dickey-Fuller tests against fractional alternatives," Economics Letters, Elsevier, vol. 35(2), pages 155-160, February.
    2. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
    3. Lee, Dongin & Schmidt, Peter, 1996. "On the power of the KPSS test of stationarity against fractionally-integrated alternatives," Journal of Econometrics, Elsevier, vol. 73(1), pages 285-302, July.
    4. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
    5. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    6. Hassler, Uwe & Wolters, Jurgen, 1994. "On the power of unit root tests against fractional alternatives," Economics Letters, Elsevier, vol. 45(1), pages 1-5, May.
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    More about this item

    Keywords

    Persistence; Commodity prices; Unit roots; Long memory; C22; O13;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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