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On Jumps and ARCH Effects in Natural Resource Prices: An Application to Pacific Northwest Stumpage Prices
Author(s) -
Saphores JeanDaniel,
Khalaf Lynda,
Pelletier Denis
Publication year - 2002
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/1467-8276.00305
Subject(s) - stumpage , arch , sample (material) , resource (disambiguation) , natural resource , economics , monte carlo method , econometrics , horizon , environmental science , mathematics , computer science , statistics , engineering , agricultural economics , ecology , geometry , structural engineering , physics , computer network , biology , thermodynamics
Continuous‐time models of natural resource prices usually preclude the possibility of large changes (jumps) resulting from unexpected events. To test for the presence of jumps and/or ARCH effects, we combine bounds and the Monte Carlo test technique to obtain finite‐sample, level‐exact p ‐values. We apply this methodology to stumpage prices from the Pacific Northwest and find evidence of jumps and ARCH effects. To assess the impact of neglecting jumps on the decision to harvest old‐growth timber, we develop an autonomous, infinite‐horizon stopping model for which we provide a new method of resolution. Our numerical results show the importance of modeling jumps explicitly.