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

  • Joseph V. Balagtas
  • Matthew T. Holt

This article extends the recent literature on the Prebisch-Singer hypothesis of a long-run decline in the relative prices of primary commodities. Our main innovation is testing for and estimating nonlinear alternatives to a secular deterioration. Specifically, we use bootstrap procedures to test the linear unit root model against models belonging to the family of smooth transition autoregressions (STARs) for twenty-four commodities, 1900–2003. In nineteen cases we reject the linear null at usual significance levels. In sixteen cases we are able to successfully fit STAR-type models. Simulation results show there is little support for the Prebisch-Singer hypothesis. Copyright 2009, Oxford University Press.

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Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 91 (2009)
Issue (Month): 1 ()
Pages: 87-105

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Handle: RePEc:oup:ajagec:v:91:y:2009:i:1:p:87-105
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