Journal of Forest Economics > Vol 15 > Issue 4

Use of composite forest commodity price indices for cointegration analysis

Shiv N. Mehrotra, shiv.mehrotra@gmail.com , Shashi Kant
 
Suggested Citation
Shiv N. Mehrotra and Shashi Kant (2009), "Use of composite forest commodity price indices for cointegration analysis", Journal of Forest Economics: Vol. 15: No. 4, pp 237-260. http://dx.doi.org/10.1016/j.jfe.2009.01.001

Publication Date: 0/12/2009
© 0 2009 Shiv N. Mehrotra, Shashi Kant
 
Subjects
 
Keywords
JEL Codes:C32Q23
Product aggregationComposite commodityGeneralized Composite Commodity TheoremMultivariate cointegration analysis
 

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In this article:
Introduction 
Forest product price data averaging and the generalized composite commodity theorem 
Data description 
Methodology and results 
Conclusions 

Abstract

Time series data on forest product prices used in research is frequently the product of temporal, spatial as well as product aggregation. This paper analyzes the implications of the use of composite commodity price indices in cointegration analysis and tests the validity of the assumptions underlying it. It tests for the presence of a common stochastic trend in disaggregated softwood lumber product price series in multiple US markets, a validity condition supported by the Generalized Composite Commodity Theorem (Lewbel, 1996. Aggregation without separability: a generalized composite commodity theorem. The American Economic Review 86(3), 524–543.). The presence of a common stochastic trend in softwood lumber product price series tested is consistently rejected by Johansen's (1988. Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control 12(2–3), 231–254.) multivariate cointegration analysis. Together with rejection of non-stationarity property for a significantly large number of price series tested, the results highlight the significance of the assumptions underlying the use of composite forest commodity price indices for cointegration analysis.

DOI:10.1016/j.jfe.2009.01.001