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Breaking Trends and the Prebisch-Singer Hypothesis: A Further Investigation

Listed author(s):
  • Ghoshray, Atanu
  • Kejriwal, Mohitosh
  • Wohar, Mark E.

This paper examines the Prebisch-Singer Hypothesis employing new time se- ries procedures that are robust to the nature of persistence in the commodity price shocks, thereby obviating the need for unit root pretesting. Speci cally, the proce- dures allow consistent estimation of the number of structural breaks in the trend function as well as facilitate the distinction between trend breaks and pure level shifts. In comparison with past studies, we nd fewer cases of commodities that display negative trends thereby weakening the case for the Prebisch-Singer Hypoth- esis. Finally, a new set of powerful unit root tests allowing for structural breaks under both the null and alternative hypotheses is applied to determine whether the underlying commodity price series can be characterized as di¤erence or trend sta- tionary processes. Relative to the extant literature, we nd more evidence in favor of trend stationarity suggesting that real commodity price shocks are mostly of a transitory nature.

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File URL: http://purl.umn.edu/120387
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Paper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 120387.

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Date of creation: 2011
Handle: RePEc:ags:eaae11:120387
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