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Commodity Prices And Unit Root Tests

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  • Wang, Dabin
  • Tomek, William G.

Abstract

Endogenous variables in structural models of agricultural commodity markets are typically treated as stationary. Yet, tests for unit roots have rather frequently implied that commodity prices are not stationary. This seeming inconsistency is investigated by focusing on alternative specifications of unit root tests. We apply various specifications to Illinois farm prices of corn, soybeans, barrows and gilts, and milk for the 1960 through 2002 time span. The preponderance of the evidence suggests that nominal prices do not have unit roots, but under certain specifications, the null hypothesis of a unit root cannot be rejected, particularly when the logarithms of prices are used. If the test specification does not account for a structural change that shifts the mean of the variable, the results are biased toward concluding that a unit root exists. In general, the evidence does not favor the existence of unit roots.

Suggested Citation

  • Wang, Dabin & Tomek, William G., 2004. "Commodity Prices And Unit Root Tests," 2004 Conference, April 19-20, 2004, St. Louis, Missouri 19032, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:ncrfou:19032
    DOI: 10.22004/ag.econ.19032
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    Cited by:

    1. Wang, Dabin & Tomek, William G., 2004. "Commodity Prices And Unit Root Tests," 2004 Annual meeting, August 1-4, Denver, CO 20141, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Guillotreau, Patrice & Jiménez-Toribio, Ramón, 2011. "The price effect of expanding fish auction markets," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 211-225, August.
    3. Tiwari, Aviral Kumar & Dutta, Subhendu & Dash, Aruna Kumar, 2017. "Testing of the Seasonal Unit Root Hypothesis in the Price Indices of Agricultural Commodities in India," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 14(2), December.
    4. J. Frank & P. Garcia, 2009. "Time-varying risk premium: further evidence in agricultural futures markets," Applied Economics, Taylor & Francis Journals, vol. 41(6), pages 715-725.

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    Keywords

    Marketing;

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