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Cyclical non-stationarity in commodity prices

Author

Listed:
  • Atle Oglend

    (University of Stavanger)

  • Frank Asche

    (University of Stavanger
    University of Florida)

Abstract

This paper applies the Hylleberg et al. (J Econom 44(1):215–238, 1990) parametric seasonal unit root test to test for cyclical non-stationarity in commodity prices. The testing procedure is simple and involves evaluating various linear restrictions on lagged price levels in an error correction model of prices, equivalent to the Augmented Dickey–Fuller test. Unit root behaviour at low frequencies implies cyclical non-stationarity. In our empirical application, we fail to reject unit roots at frequencies associated with 3- to 5-year-long price cycles for 7 of 16 major commodities. Our results suggest that longer cycles in many commodity prices are highly stochastic, and care should be taken when interpreting the regularity and out-of-sample predictability of such cycles using historical price movements.

Suggested Citation

  • Atle Oglend & Frank Asche, 2016. "Cyclical non-stationarity in commodity prices," Empirical Economics, Springer, vol. 51(4), pages 1465-1479, December.
    • Handle: RePEc:spr:empeco:v:51:y:2016:i:4:d:10.1007_s00181-015-1060-6
    DOI: 10.1007/s00181-015-1060-6
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    More about this item

    Keywords

    Commodity prices; Cycles; Unit roots; Agriculture;
    All these keywords.

    JEL classification:

    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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