Abstract

Price theory suggests that commodity prices should be stationary series. Yet, tests for unit roots rather frequently imply that these prices are not stationary. This seeming inconsistency is investigated by applying alternative specifications of unit root tests to prices of corn, soybeans, barrows and gilts, and milk. The preponderance of evidence suggests that nominal prices do not have unit roots, but the results are sensitive to the specification of the test equation. Accounting for a structural change that shifts the mean appears to be an important issue in unit root tests. Key words: commodity prices, unit root tests. A good understanding of the time-series prop-erties of agricultural product prices is a prereq-uisite to useful analyses of risk management and forecasting problems, and one question is, are commodity price series stationary? This question has been addressed directly and indi-rectly in two streams of literature. On the one hand, empirical tests, motivated by the vast lit-