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The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives: A Smooth Transition Approach
Author(s) -
Balagtas Joseph V.,
Holt Matthew T.
Publication year - 2009
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/j.1467-8276.2008.01179.x
Subject(s) - null hypothesis , unit root , commodity , econometrics , nonlinear system , economics , star (game theory)
This article extends the recent literature on the Prebisch‐Singer hypothesis of a long‐run decline in the relative prices of primary commodities. Our main innovation is testing for and estimating nonlinear alternatives to a secular deterioration. Specifically, we use bootstrap procedures to test the linear unit root model against models belonging to the family of smooth transition autoregressions (STARs) for twenty‐four commodities, 1900–2003. In nineteen cases we reject the linear null at usual significance levels. In sixteen cases we are able to successfully fit STAR‐type models. Simulation results show there is little support for the Prebisch‐Singer hypothesis.