Title: Temporal Aggregation and Testing For Timber Price Behavior
Author: Prestemon, Jeffrey P.; Pye, John M.; Holmes, Thomas P.
Source: Natural Resource Modeling, Volume 17, Number 2, Summer 2004
Description: Different harvest timing models make different assumptions about timber price behavior. Those seeking to optimize harvest timing are thus first faced with a decision regarding which assumption of price behavior is appropriate for their market, particularly regarding the presence of a unit root in the timber price time series. Unfortunately for landowners and investors, the literature provides conflicting guidance on this sub ject. One source for the ambiguous results of unit root tests of timber prices may involve data problems. We used Monte Carlo simulations to show that aggregating observations below their observed rate resulted in similar power reductions and empirical size distortions across three classes of unit root tests. Moving-average error structures can also affect power and sizes of tests on period-averaged data. Such error structures can also be created by the kind of temporal averaging common in reported timber prices. If we take timber prices at their face value and therefore ignore these sampling error and temporal aggregation complications, we find that unit root tests on southern timber prices support a unit root in 158 out of 208 product-deflation combinations tested, random walks in 38 of the series found to be nonstationary, and stationarity in none. However, if we recognize temporal aggregation errors, unit root tests more commonly favor stationarity, especially for pulpwood stumpage. Because price trends for sawtimber and pulpwood products may behave differently even in the same region, stochastic harvest timing models must be developed that allow their multiple products to follow different price paths.
Keywords: Nonstationarity, stationarity, unit root, stumpage, temporal aggregation
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Prestemon, Jeffrey P.; Pye, John M.; Holmes, Thomas P. 2004. Temporal Aggregation and Testing For Timber Price Behavior. Natural Resource Modeling, Volume 17, Number 2, Summer 2004
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