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Forecasting the spot prices of various coffee types using linear and non‐linear error correction models
Author(s) -
Milas Costas,
Otero Jesús,
Panagiotidis Theodore
Publication year - 2004
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.245
Subject(s) - econometrics , spot contract , economics , order (exchange) , nonlinear system , linear model , error correction model , prior probability , random walk , mathematics , cointegration , statistics , financial economics , futures contract , bayesian probability , finance , physics , quantum mechanics
This paper estimates linear and non‐linear error correction models for the spot prices of four different coffee types. In line with economic priors, we find some evidence that when prices are too high, they move back to equilibrium more slowly than when they are too low. This may reflect the fact that, in the short run, it is easier for countries to restrict the supply of coffee in order to raise prices, rather than increase supply in order to reduce them. Further, there is some evidence that adjustment is faster when deviations from the equilibrium level get larger. Our forecasting analysis suggests that asymmetric and polynomial error correction models offer weak evidence of improved forecasting performance relative to the random walk model. Copyright © 2004 John Wiley & Sons, Ltd.