Impacts of Permanent and Transitory Shocks on Optimal Length of Moving Average to Predict Wheat Basis
A new stochastic process is introduced where permanent changes occur following a Poisson jump process and temporary changes occur following a normal distribution. The model is estimated using hard wheat basis data and is used to explain why the optimal length of moving average to forecast basis varies over time. The estimated probability of jumps is large and thus the optimal length of moving average is small.
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