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On Jumps and ARCH Effects in Natural Resource Prices: An Application to Pacific Northwest Stumpage Prices

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  • Jean-Daniel Saphores
  • Lynda Khalaf
  • Denis Pelletier

Abstract

Continuous-time models of natural resource prices usually preclude the possibility of large changes (jumps) resulting from unexpected events. To test for the presence of jumps and/or ARCH effects, we combine bounds and the Monte Carlo test technique to obtain finite-sample, level-exact p-values. We apply this methodology to stumpage prices from the Pacific Northwest and find evidence of jumps and ARCH effects. To assess the impact of neglecting jumps on the decision to harvest old-growth timber, we develop an autonomous, infinite-horizon stopping model for which we provide a new method of resolution. Our numerical results show the importance of modeling jumps explicitly. Copyright 2002, Oxford University Press.

Suggested Citation

  • Jean-Daniel Saphores & Lynda Khalaf & Denis Pelletier, 2002. "On Jumps and ARCH Effects in Natural Resource Prices: An Application to Pacific Northwest Stumpage Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 387-400.
  • Handle: RePEc:oup:ajagec:v:84:y:2002:i:2:p:387-400
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    File URL: http://hdl.handle.net/10.1111/1467-8276.00305
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    Citations

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    Cited by:

    1. Rajendra Prasad Khajuria & Shashi Kant & Susanna Laaksonen-Craig, 2009. "Valuation of Timber Harvesting Options Using a Contingent Claims Approach," Land Economics, University of Wisconsin Press, vol. 85(4), pages 655-674.
    2. Work, J. & Qiu, F. & Luckert, M.K., 2016. "Examining hardwood pulp and ethanol prices for improved poplar plantations in Canada," Forest Policy and Economics, Elsevier, vol. 70(C), pages 9-15.
    3. Mehmet Balcilar & Zeynel Abidin Ozdemir, 2018. "The volatility effect on precious metals prices in a stochastic volatility in mean model with time-varying parameters," Working Papers 15-34, Eastern Mediterranean University, Department of Economics.
    4. Chen, Shan & Insley, Margaret, 2012. "Regime switching in stochastic models of commodity prices: An application to an optimal tree harvesting problem," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 201-219.
    5. Bruce McGough & Andrew J. Plantinga & Bill Provencher, 2004. "The Dynamic Behavior of Efficient Timber Prices," Land Economics, University of Wisconsin Press, vol. 80(1), pages 95-108.
    6. Tsai, Mei-Ting & Saphores, Jean-Daniel & Regan, Amelia, 2011. "Valuation of freight transportation contracts under uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 920-932.
    7. Saphores, Jean-Daniel & Vincent, Jeffrey R. & Marochko, Valy & Abrudan, Ioan & Bouriaud, Laura & Zinnes, Clifford, 2006. "Detecting collusion in timber auctions : an application to Romania," Policy Research Working Paper Series 4105, The World Bank.
    8. 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.
    9. Hellström, Jörgen & Lundgren, Jens & Yu, Haishan, 2012. "Why do electricity prices jump? Empirical evidence from the Nordic electricity market," Energy Economics, Elsevier, vol. 34(6), pages 1774-1781.
    10. Creamer, Selmin F. & Genz, Alan & Blatner, Keith A., 2012. "The Effect of Fire Risk on the Critical Harvesting Times for Pacific Northwest Douglas-Fir When Carbon Price Is Stochastic," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 41(3), December.

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